Agency Costs and Corporate Governance Mechanisms: Evidence for UK Firms

International Journal of Managerial Finance, Vol 4, pp. 37-59

Posted: 10 Jun 2011

Date Written: December 16, 2006

Abstract

In this paper, we aim to extend the empirical literature on the determinants of agency costs by using a large sample of UK listed firms. We investigate the impact of several corporate governance mechanisms on two alternative proxies for agency costs, namely the ratio of total sales to total assets (asset turnover) and the ratio of selling, general and administrative expenses to total sales (SG&A). The analysis depends on a cross sectional regression approach. Our results reveal that the capital structure characteristics of firms, namely bank debt and debt maturity, constitute important corporate governance devices for UK companies. Also, managerial ownership, managerial compensation and ownership concentration are strongly associated with both proxies of agency costs. Finally, our results suggest that the impact exerted by specific internal governance mechanisms on agency costs varies with firms’ growth opportunities. Our analysis adds to the empirical literature on agency costs by providing useful insights into how debt maturity and managerial compensation can help mitigate agency related problems. It also highlights important interactions between internal governance mechanisms and firm growth opportunities.

Keywords: Agency costs, ownership structure, corporate governance mechanisms, growth opportunities

JEL Classification: G3, G32

Suggested Citation

Florackis, Chris, Agency Costs and Corporate Governance Mechanisms: Evidence for UK Firms (December 16, 2006). International Journal of Managerial Finance, Vol 4, pp. 37-59, Available at SSRN: https://ssrn.com/abstract=1862153

Chris Florackis (Contact Author)

University of Liverpool (UK) ( email )

The Management School
University of Liverpool
Liverpool, L 697ZH
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
1,513
PlumX Metrics