International Journal of Management, Accounting and Economics

Monthly Publication

Current Issue

By Issue

By Author

By Subject

Author Index

Keyword Index

About Journal

Aims and Scope

Editorial Board

Publication Ethics

Indexing and Abstracting

Related Links

FAQ

Peer Review Process

Journal Metrics

News

Determinants of Agency Costs: Evidence from Non-Bank Financial Institutions of Bangladesh

Document Type : Original Research

Authors

1 Department of Accounting and Information Systems, University of Dhaka, Dhaka, Bangladesh

2 Department of Business Administration, University of Asia Pacific, Dhaka, Bangladesh

Abstract

The main purpose of the research is to determine the factors that influence agency costs in listed non-bank financial institutions of Bangladesh. The following eight factors have been considered in this study: board size, percentage of independent directors, and percentage of female directors under board characteristics; percentage of managerial ownership, institutional ownership, and foreign ownership under ownership structure; and leverage and firm size under firm characteristics. To measure agency costs, the asset utilization ratio (AUR) and expense ratio (ER) have been used as proxies. The regression results demonstrate that board size, institutional ownership and leverage are all inversely and significantly associated to agency costs, but managerial ownership has a significant and positive relationship. On the other hand, no significant relationship has been found among the percentage of independent directors, female directors and firm size with agency costs. However, the nature of the relationship between the percentage of foreign ownership and agency costs could not be generalized. The findings of this study will assist financial institution executives in Bangladesh in understanding the existing factors that influence agency costs and will help them in reducing agency costs by identifying and addressing the causes.

Keywords

Main Subjects

COPYRIGHTS

©2022 The author(s). This is an open access article distributed under the terms of the Creative Commons Attribution (CC BY 4.0), which permits unrestricted use, distribution, and reproduction in any medium, as long as the original authors and source are cited. No permission is required from the authors or the publishers.

References
Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance.  Journal of financial economics, 94(2), 291-309.
Ain, Q. U., Yuan, X., Javaid, H. M., Usman, M., & Haris, M. (2020). Female directors and agency costs: evidence from Chinese listed firms.  International Journal of Emerging Markets, 16(8), 1604-1633.
Ang, J. S., Cole, R. A., & Lin, J. W. (2000). Agency costs and ownership structure. The Journal of Finance, 55(1), 81-106.
Aziz, T., Majeed, S., & Saleem, S. (2015). The impact of corporate governance mechanism on agency cost: an empirical evidence of Pakistani listed companies. Business, Management and Economics Research, 1(6), 79-91.
Bathala, C. T., & Rao, R. P. (1995). The determinants of board composition: An agency theory perspective. Managerial and decision economics, 16(1), 59-69.
Bowerman, B. L., & O'Connell, R. T. (1990). Linear statistical models: An applied approach. Boston : PWS-Kent Pub. Co.
Brickley , J. A., Coles, J. L., & Jarrell, G. (1997). Leadership structure: Separating the CEO and chairman of the board. Journal of Corporate Finance, 3(3), 189-220.
Čalopa, N. K., Kokotec, I. Ð., & Kokot, K. (2020). Impact of board size and ownership concentration on agency costs: evidence for Croatian companies. Zbornik Radova Ekonomski Fakultet u Rijeka, 38(2), 521-535.
Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. Financial review, 38(1), 33-53.
Cheng, S., Evans, J. H., & Nagarajan, N. J. (2008). Board size and firm performance: the moderating effects of the market for corporate control. Review of Quantitative Finance and Accounting, 31(2), 121-145.
Coles, J. L., Daniel, N. D., & Naveen, L. (2008). Boards: Does one size fit all? Journal of financial economics, 87(2), 329-356.
Core, J. E., Holthausen, R. W., & Larcker, D. F. (1997). Corporate governance, CEO compensation, and firm performance. CEO Compensation, and Firm Performance.
Crutchley, C. E., Jensen, M. R., Jahera Jr, J. S., & Raymond, J. E. (1999). Agency problems and the simultaneity of financial decision making: The role of institutional ownership. International review of financial analysis, 8(2), 177-197.
Doukas , J., McKnight, P. J., & Pantzalis, C. (2005). Security analysis, agency costs, and UK firm characteristics. International Review of Financial Analysis, 14(5), 493-507.
Fauzi, F., & Locke, S. (2012). Board structure, ownership structure and firm performance: A study of New Zealand listed-firms. Asian Academy of Management Journal of Accounting and Finance,, 43-67.
Florackis, C. (2008). Agency costs and corporate governance mechanisms: Evidence for UK firms. International Journal of Managerial Finance,, 4(1), 37-59.
Francoeur, C., Labelle, R., & Sinclair-Desgagné, B. (2008). Gender diversity in corporate governance and top management. Journal of Business Ethics, 81(1), 83-95.
Garanina, T., & Kaikova, E. (2016). Corporate governance mechanisms and agency costs: cross-country analysis. Corporate Governance: The International Journal of Business in Society, 16(2), 347-360.
Guillen, M. F. (2017). Business groups in emerging economies: A resource-based view. Academy of Management Journal, 43(3), 362-380.
Gul, F. A., Srinidhi, B., & Ng, A. C. (2011). Does board gender diversity improve the informativeness of stock prices? Journal of Accounting and Economics, 51(3), 314-338.
Henry , D. (2004). Corporate governance and ownership structure of target companies and the outcome of takeovers . Pacific-Basin Finance Journal, 12(4), 419-444.
Henry, D. (2007). Agency costs, corporate governance and ownership structure: evidence from Australia. Financial Management Association, (pp. 17-20). Orlando.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behaviour, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.
Junwei, W., Guiqin, L., & Ping, H. (2011). Study on the Relationship between Agency Costs and Governance Mechanisms: Evidence from China’s A-share Listed Companies. M&D Forum Studies , 258-271.
Jurkus, A. F., Park, J. C., & Woodard, L. S. (2011). Women in top management and agency costs.  Journal of Business Research, 64(2), 180-186.
Lu, S. L., & Li, Y. H. (n.d.). Effect of corporate governance on institutional investors’ preferences: An empirical investigation in Taiwan.  Journal of Risk and Financial Management, 12(1), 32.
McKnight, P. J., & Weir, C. (2009). Agency costs, corporate governance mechanisms and ownership structure in large UK publicly quoted companies: A panel data analysis. The quarterly review of economics and finance, 49(2), 139-158.
Monks, R., & Minow, N. (2009). Agency costs, corporate governance mechanisms and ownership structure in large UK publicly quoted companies: A panel data analysis. The quarterly review of economics and finance, 49(2), 139-158.
Neter, J., Wasserman, W., & Kutner, M. H. (1989). Applied Linear Regression Models. Homewood: Richard D. Irwin, Inc.
Nguyen, A. H., Doan, T., & Nguyen, L. H. (2020). Corporate governance and agency cost: Empirical evidence from Vietnam. Journal of Risk and Financial Management, 13(5), 103.
Nguyen, T. T., Evans, E., & Lu, M. (2017). Independent directors, ownership concentration and firm performance in listed companies: Evidence from Vietnam.  Pacific Accounting Review, 29(2), 204-226.
Pletzer, J. L., Nikolova, R., Kedzior, K. K., & Voelpel, S. C. (2015). Does gender matter? Female representation on corporate boards and firm financial performance-a meta-analysis. PloS One, 10(6), 1–20.
Rashid, A. (2016). Managerial ownership and agency cost: Evidence from Bangladesh. Journal of Business Ethics, 137(3), 609-621.
Sehrawat, N. K., Kumar, A., Lohia , N., Bansal, S., & Agarwal, T. (2019). Impact of Corporate Governance on Earnings Management: Large Sample Evidence from India. Asian Economic and Financial Review, 9(12), 1335.
Singh , M., & Davidson , W. N. (2003). Agency costs, ownership structure and corporate governance mechanisms. Journal of Banking & Finance, 27(5), 793-816.
Sobhan, R. (2021). Board Characteristics and Firm Performance: Evidence from the Listed Non-Banking Financial Institutions of Bangladesh. International Journal of Management, Accounting and Economics, 8(1), 25-41.
Vijayakumaran, R. (2019). Agency costs, ownership, and internal governance mechanisms: Evidence from Chinese listed companies. Asian Economic and Financial Review, 9(1), 133-154.
Vo, D. H., & Nguyen, T. M. (2014). The impact of corporate governance on firm performance: Empirical study in Vietnam. . International Journal of Economics and Finance, 6(6), 1-13.
Wellalage, N. H., & Locke, S. (2013). Women on board, firm financial performance and agency costs. Asian Journal of Business Ethics, 2(2), 113-127.
Xu , X., & Wang, Y. (1999). Ownership structure and corporate governance in Chinese stock companies. China Economic Review, 10(1), 75-98.
International Journal of Management, Accounting and Economics
Volume 9, Issue 2 - Serial Number 91
February 2022
Pages 68-84
Files
Share
How to cite
Statistics