Agency Cost Management in the Digital Economy

2020 ◽  
pp. 130-151
Author(s):  
Dmitriy A. Zhdanov
Keyword(s):  
Corporate Governance ◽  
Information Asymmetry ◽  
Agency Costs ◽  
Cost Management ◽  
Agency Cost ◽  
Opportunistic Behavior ◽  
Top Managers ◽  
Top Manager ◽  
The Impact ◽  
Selection Of

The purpose of the present study was to find the answer to the following questions: How the growing digitalization will affect agency relations, an important element of corporate governance, and what preventive measures should be taken in this situation? Therefore, the impact of digitalization on opportunistic behavior and agency costs was reviewed. The analysis revealed that digitalization provokes reduction of information asymmetry, leads to a decrease in the initiative of top managers, thereby changing the preconditions of opportunistic behavior. On the basis of the ordinal approach, an original toolkit was developed, which made it possible to model the identified dependencies, transformation of the agents' utility in case the principals' demands altering, and to demonstrate ways to reduce agency costs by proper selection of candidates for top manager positions. In conclusion, by means of the developed toolkit, the methodological recommendations were suggested for selecting the agents during the process of recruitment, taking into account the impact of digitalization.

scholarly journals Agency costs and corporate governance mechanisms in Indian state-owned companies and privately owned companies - A panel data analysis

2014 ◽  
Vol 11 (4) ◽  
pp. 8-17
Author(s):  
Stuart Locke ◽  
Geeta Duppati
Keyword(s):  
Corporate Governance ◽  
Agency Costs ◽  
Panel Data Analysis ◽  
Agency Cost ◽  
Open Market ◽  
Public Companies ◽  
Corporate Governance Mechanisms ◽  
The Government ◽  
Suitable Reference ◽  
The Impact

This paper explores the impact of corporate governance reforms and changing ownership patterns of core public sector enterprises. A number of reforms were introduced by the Government of India in 1991, and intensified in 2004 with the aim of improving efficiency and financial performance across state owned enterprises. The core state enterprises provide a unique opportunity to consider two aspects of the reforms. First, did the reforms have an impact, and second, is there a distinguishable difference between wholly government owned and partially-public shareholding enterprises? The public listed companies provide a suitable reference point for comparison. A comprehensive dataset of 123 SOEs and matching listed public companies for 10 years was collected for the study. A regression approach is adopted with agency cost as the dependant variable and several corporation-specific governance variables. Size and industry are the independent variables. The findings of the study indicate that the agency costs for mixed ownership models tend to be lower than those of the concentrated state-owned firms because they operate in an open market with the market facing the regulatory framework of a competitive environment.

scholarly journals Impact of Corporate Governance Regulation on Market Risk

2012 ◽  
Vol 37 (2) ◽  
pp. 19-32 ◽  
Author(s):  
Dheeraj Misra ◽  
Sushma Vishnani
Keyword(s):  
Corporate Governance ◽  
Information Asymmetry ◽  
Information Content ◽  
Cash Flows ◽  
Market Risk ◽  
Agency Cost ◽  
Point Of View ◽  
Theoretical Point ◽  
The Impact ◽  
Future Cash Flows

In case of public limited companies, there has been a separation of ownership from management. There is a lack of congruence between the interests of shareholders and managers. Shareholders always believe in maximizing their wealth while managers may invest the funds provided by shareholders in projects which may increase the size of the company but may provide inadequate returns to the shareholders. Managers are better informed than shareholders about the prospects of the company. Thus, there is an information asymmetry between shareholders and managers. This leads to agency cost. The system should be designed in such a way that it reduces the information asymmetry between them. One of the means in which information asymmetry can be reduced between shareholders and managers is to impose an effective regulation on the companies such that the shareholders are better informed about the prospects of the company. Mandatory disclosures on corporate governance means equity investors in a company have access to more information about the current performance and future prospects of the company. This information effect of corporate disclosures provides better estimates to the investors regarding the expected future cash flows. The reduction in the degree of uncertainty regarding the estimates of the firm�s future cash flows lowers beta (market risk) of the firm. Thus, from a theoretical point of view, the impact of corporate governance regulation has an inverse impact on market risk To achieve the same objective, SEBI, a regulator of the Indian capital market, imposed a regulation for the listed public limited companies with effect from March 31, 2001. This paper attempts to analyse whether the corporate governance regulation has reduced the market risk of the Indian A-Group companies of BSE. To investigate the impact of the regulation on market risk, a sample carrying more than thirteen years time period from March 1995 to August 2008, has been chosen. The results show that neither the corporate governance regulation imposed on March 31, 2001 nor the amendments on the same brought on January 1, 2006 has been able to significantly reduce the market risk of A-Group companies of BSE. However, the investors consider the information content provided in the amendments more genuine and simpler than the information content provided in the original regulation.

scholarly journals Corporate Governance and Agency Cost: Empirical Evidence from Vietnam

2020 ◽  
Vol 13 (5) ◽  
pp. 103 ◽  
Author(s):  
Anh Huu Nguyen ◽  
Duong Thuy Doan ◽  
Linh Ha Nguyen
Keyword(s):  
Corporate Governance ◽  
Board Of Directors ◽  
Agency Costs ◽  
Fixed Effects ◽  
Wide Spectrum ◽  
Ordinary Least Squares ◽  
Agency Cost ◽  
Fixed Effects Model ◽  
Board Characteristics ◽  
The Impact

This study examines the impact of corporate governance, reflecting a wide spectrum of board characteristics and ownership structure on agency costs in 281 listed companies on Ho Chi Minh Stock Exchange (HOSE) in Vietnam in the period 2013–2018. For this purpose, three board characteristics were chosen: (1) the size of board of directors, (2) equilibrium between non-executive and executive members of the board of directors, (3) the CEO chair duality and three types of ownership structures were chosen: (1) management ownership, (2) government ownership, (3) foreign ownership. An inverse proxy of agency costs is used: asset utilization ratio (asset turnover), which reflects the managerial efficiency. The research methodology includes three statistical approaches: Ordinary least squares (OLS), fixed effects model (FEM) and random effects model (REM) are considered to employ to address econometric issues and to improve the accuracy of the regression coefficients. The results can create effective corporate governance mechanisms in controlling the managerial opportunistic behavior to lower agency conflicts, and hence lower agency costs.

Corporate Governance and Cash Holdings

2021 ◽  
pp. 305-321
Author(s):  
Ahmed Hassanein
Keyword(s):  
Corporate Governance ◽  
Cash Holdings ◽  
Opportunistic Behavior ◽  
Governance System ◽  
Firm Level ◽  
Corporate Managers ◽  
Country Level ◽  
Corporate Governance System ◽  
The Impact ◽  
Corporate Cash Holdings

Corporate cash induces the opportunistic behavior of corporate managers that can create an agency problem. A corporate governance system controls the opportunistic behavior of managers and can affect the firm's policy on holding cash. This study explains how the aspects of corporate governance, country-level and firm-level governance, can affect the corporate policy on holding cash. First, the study provides the nature, definition, and importance of corporate cash holdings. Second, it outlines various motivations and theories behind holding corporate cash. Third, it explains the relation between firm-level governance and corporate cash holdings. Fourth, it focuses on the impact of firm-specific governance attributes on the level of corporate cash holdings. Fifth, it presents the relation between country-level governance and corporate cash holdings.

scholarly journals Agency Costs, Corporate Governance and the Nature of Controlling Shareholders: Evidence From French Listed Firms

2018 ◽  
Vol 8 (3) ◽  
pp. 256 ◽  
Author(s):  
Dabboussi Moez
Keyword(s):  
Corporate Governance ◽  
Board Of Directors ◽  
Agency Costs ◽  
Managerial Ownership ◽  
Investment Horizon ◽  
Agency Conflicts ◽  
Controlling Shareholders ◽  
Listed Firms ◽  
Indirect Benefits ◽  
The Impact

This paper examines the impact of internal corporate governance on agency costs for French firms from 2000 to 2015. Our results reveal that shareholders themselves are not a homogenous group since they have no single common investment horizon. We found that managerial ownership is more effective in mitigating operational expenses. However, they take advantage of excessive spending on indirect benefits. We show that board of directors does not serve as a significant deterrent to excessive discretionary expenses. Finally, we found that dividend policy is a useful tool to reduce agency conflicts by reducing cash that is available for discretionary uses.

The impact of external and internal corporate governance mechanisms on agency costs

2019 ◽  
Vol 19 (1) ◽  
pp. 1-22 ◽  
Author(s):  
Jonas Schäuble
Keyword(s):  
Corporate Governance ◽  
Agency Costs ◽  
Governance Mechanisms ◽  
Content Type ◽  
Frontier Analysis ◽  
Audit Firm ◽  
Audit Market ◽  
Corporate Governance Mechanisms ◽  
The Us ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of external and internal corporate governance mechanisms on agency costs. Design/methodology/approach The author uses data from German firms that were listed in the regulated market of the Frankfurt Stock exchange during 2006-2011. Agency costs were measured using stochastic frontier analysis, a relatively new approach to estimate agency costs. The regression analysis is applied to test the model. Findings The results indicate that an industry specialized audit firm, the presence of a large audit firm, abnormal audit fees, management ownership and variable management compensation are significantly negatively associated with the level of a firms’ agency costs. In contrast, this seems not to be true for the existence of an audit committee for which the results of the paper document a non-significant association. Originality/value The paper contributes to the existing literature in several ways. First, the research design is to the best of the authors’ knowledge the first that investigates the influence of different corporate governance mechanisms on the level of agency costs. Second, previous studies are mainly focused on the US audit market. This focus on the US audit market leaves uncertainties regarding the direction and magnitude of the empirical relationship in the European and German environmental context. Finally, the paper provides initial empirical evidence for a sample of German IFRS listed companies (IFRS – International Financial Reporting Standards).

Inter-Firm Connections, Alliance Formation and the Value Created by Alliances

2020 ◽  
Vol 10 (04) ◽  
pp. 2050019
Author(s):  
Yun Liu ◽  
Tomas Mantecon ◽  
Sabatino Dino Silveri ◽  
Wei Sun
Keyword(s):  
Moral Hazard ◽  
Information Asymmetry ◽  
Social Connections ◽  
Opportunistic Behavior ◽  
Alliance Formation ◽  
Board Interlocks ◽  
Valuation Effect ◽  
Ex Post ◽  
The Impact ◽  
Flow Of Information

We investigate the impact of inter-firm connections on alliances. We find that both professional connections and social connections, borne out of board interlocks, employment ties and educational ties, increase the likelihood of alliance formation. In addition, the market reacts more favorably to alliance announcements in the presence of such connections, and this positive valuation effect increases with the degree of information asymmetry between the partner firms. Our findings are consistent with inter-firm connections creating value because they facilitate the flow of information between partner firms, thereby reducing moral hazard concerns and the risk of ex-post opportunistic behavior.

Shariah monitoring, agency cost and fund performance in Malaysian mutual funds

2020 ◽  
Vol 11 (5) ◽  
pp. 945-972
Author(s):  
Mohd Fikri Sofi ◽  
M.H. Yahya
Keyword(s):  
Corporate Governance ◽  
Empirical Evidence ◽  
Mutual Funds ◽  
Agency Costs ◽  
Fund Performance ◽  
Agency Cost ◽  
Advisory Panel ◽  
Data Set ◽  
Content Type ◽  
Shariah Governance

Purpose This paper aims to examine the effect of Shariah Advisory Panel (SAP) on both the level of agency cost and fund performance against conventional corporate governance, within corporate and Shariah governance settings, between Shariah and conventional mutual fund (CMF), in an emerging economy of Malaysia during the period 2008-2015. Design/methodology/approach Panel data regression is appropriately used within corporate governance research because of empirical issues of unobserved heterogeneity effects to avoid spurious evidence. The secondary data of 172 CMFs and 80 Shariah mutual funds are gathered hand-collected from annual reports and master prospectuses for the purpose of analysis between the period 2008 and 2015, generating 2,016 fund-year observations. Findings SAP is found to have a positive effect on agency costs. Consequently, it leads to empirical evidence that substantiates a negative and marginally significant association with fund performance when designated by accounting measure. Thus, the Shariah monitoring proxy is not a good mechanism for controlling agency costs inconsistent with performance maximizing (agency cost minimizing) outcomes. Research limitations/implications The unique data set of mutual funds used in this research may restrict the generalization of the findings unless mentioned and explained specifically the data characteristics. The single proxy for Shariah monitoring could be better off by having a list of different measures. Practical implications The paper highlights and suggests a consistent improvement in regulation that could be performed by policymakers pertaining to the non-trivial additional cost of implying Shariah governance. Originality/value This paper provides empirical evidence of the SAP effects from the view of a more complex monitoring structure in consequence of having an additional layer of governance, devoting on the trade-off between benefit and cost to shareholders.

scholarly journals The impact of earnings management on cash holdings of listed firms in Vietnam

2021 ◽  
Vol 5 (3) ◽  
pp. first
Author(s):  
Nguyễn Thanh Liêm ◽  
Thùy Thị Miên Cao ◽  
Thanh Phú Ngô
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Agency Costs ◽  
Negative Relationship ◽  
Cash Holdings ◽  
Reporting Quality ◽  
Agency Cost ◽  
Important Indicator ◽  
Research Results ◽  
The Impact

Research on the impact of earnings management on corporate cash holdings has yielded inconsistent results. In this research, we investigate the relationship between earnings management and cash holdings of non-financial firms listed on the Vietnamese stock market over the period 2011- 2019. The research results show the negative effect of earnings management on cash holdings, which exists especially for businesses facing high agency costs. This evidence suggests that the negative relationship stems from the adverse impact of earnings management on financial reporting quality. This result is robust to a variety of approaches to deal with the endogenous problems and defects of the model, as well as the use of two different measures of agency cost. An implication from the result is such management increases information asymmetry, which makes it unfit for businesses to keep more cash due to the excessive increase in agency costs. Therefore, the research results have important theoretical contributions and practical implications for both investors and policymakers: earnings management is an important indicator of corporate cash-holding policy.

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