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Effective corporate governance leads the way towards aligning the interest between managers and shareholders. Effectiveness of practicing the corporate governance of companies in Sri Lanka is debatable topic due to the variation between standard and actual practices. This study aims to examine the influence of board diversity on agency costs of companies listed in Sri Lanka as proposed by agency theory. The sample of this research consists of all companies listed in Sri Lanka, exclusive of bank and financial institutions which are practicing unique governance practices issued by Central Bank of Sri Lanka. The final sample consists of 180 companies during the period from 2013 to 2019. This study deployed panel regression analysis to test the relationship formulated in the hypotheses by using the EViews 9 software. The results showed that the board diversity-related variables such as separate leadership structure and presence of non-executive director on companies’ board are appeared to have significant influence on agency costs. Meanwhile, board size does not have direct impact on agency costs. The findings of this study regarding board diversity and agency costs have important managerial implications, that these findings are unlikely to the prediction of agency theory and best practices. Agency theory is not applicable to these companies, since the exiting corporate governance practices increase agency costs. The potential benefits of this study led to re-think the board of directors of the companies, managers, shareholder and the policymakers to re-organise the implementation of best practices.

This case study demonstrates how agency cost type 2 may lead to a conflict of interest between the promoters and the financial institutions. Proxy advisory firms further the cause of shareholder activism by addressing the dissonance so caused. They advise shareholders on the stance to be taken at the time of voting on important resolutions to be discussed in the General Body Meeting. This research case study explores how proxy advisory firms are playing an important role in promoting the cause of shareholder activism in the Indian context. It examines the role of a few Indian proxy advisory firms in foiling the attempt of Shriram Transport Finance Company (STFC) to re-appoint an independent director. Shareholder activism is relatively a less explored topic in academic research, especially in India. The authors, through this case study, wish to address this gap. The phenomenon studied in the case pertains to increased attention now being paid to reports of proxy advisory firms. Citing low attendance track record of a director in previous meeting, two Indian proxy advisory firms appealed to financial institutions to oppose the resolution to re-appoint him. Questioning his commitment and ability to devote time to the company affairs, they succeeded in thwarting the attempt of STFC to re-nominate Puneet Bhatia as director. The dilemma addressed in the case pertains to whether attendance in meeting can be a sole criterion for removing an independent director from the board. Secondary research among leading business publications unearthed major developments that have been captured in the case study. The case contributes to increasing the awareness of growing role of proxy advisory firms in India through a real example.

This research note aims to prompt a debate over the asset-light strategy that hotels are increasingly implementing nowadays. First, it evaluates the impact of an asset-light model on hotel firms’ returns, return volatility, and the Sharpe ratio, based on annual data from 1970 to 2018 of 65 U.S. public hotel firms. Evidence shows that going asset-light has no significant impact on companies’ returns, return volatility, and performance. Second, the study offers possible explanations behind such results and raises questions for future research.

Large banks and small banks can impact agency costs differently. The current study considers a panel data of 30 Indian banks before the merger to reveal the relationship between agency cost and board composition using panel regression models. The agency cost is reflected in three measures: Asset turnover ratio, free cash flow and leverage ratio. Board composition is sub-divided into three groups: board structure, board independence and board diversity. The finding of the study for large banks shows that former CEO, number of employee representatives on board, independent chairperson, CEO duality, bank age and size impacts agency cost. On the other hand, for small banks, results prove that bank age, employee representative on board and CEO duality significantly affects agency cost. Therefore, in the current Indian context of banking merger and governmental directives to increase lending to micro, small and medium enterprises, the focus should be shifted more on increasing managerial productivity and increasing leverage. Hence, the emphasis should not be on increasing governmental representatives on the banking board but to enhance bank governance quality and its monitoring. To this end, the current article can potentially provide valuable insights for sustainable and real economic outcomes.

This article tries to understand the relationship between agency cost, debt financing and Indian real estate companies’ performance. The study attempts to document the effect of debt on the firm’s profitability and then explores the reason behind such an impact by introducing the agency cost as a parameter. The study is conducted in two phases. Phase I is carried out to establish the relationship between debt financing and the firm’s financial performance. In Phase II, the study is conducted to understand the impact of agency cost on debt financing. Firms from the BSE Realty Index were selected for the period 2011–2018. Profitability is measured through return on equity (ROE), whereas debt financing is measured through the firm’s leverage ratio. The agency cost is measured through the asset utilisation ratio and general expense to sales ratio. Panel regression method is used to understand the impact of debt financing and agency cost on the firms’ profitability. The result of Phase I suggests a significant negative relationship between debt financing and the ROE and the result of Phase II suggests a positive relationship between the agency cost and debt financing. This means that reduction in agency cost will lead to lesser amount of debt financing thereby improving the firm’s financial performance.

This study examines the relation between accounting conservatism and bankruptcy risk using a large sample of U.S listed firms. We present evidence that unconditional and conditional conservatism generally are negatively associated with subsequent bankruptcy risk by creating cushions for bad times and reducing information asymmetry between borrower firms and debtholders. We identify two channels for the observed associations: Enhancing cash holdings and constraining earnings management. Using a two-stage analysis approach and using Sarbanes-Oxley Act (SOX) enactment in 2002 as exogenous shocks, we show that accounting conservatism does have a mitigating effect on bankruptcy risk.

The paper presents the development and methodology of application tools for use in transit agency cost allocation. Researchers worked with the National Rural Transit Assistance Program to develop the Two-Variable Cost Allocation Calculator applications as a resource for small transit agencies. Reports and guidance on cost allocation were reviewed to identify key considerations for application design, was also informed by previous experience with transit agencies for examples of cost and data considerations with respect to agency size, travel mode, and type of service. The applications use a two-variable methodology of vehicle hours and miles to allocate variable costs for each service, then allocate fixed costs according to the proportions of variable costs. The applications also provide a process to sub-allocate costs for shared-ride demand responsive services using passenger hours and miles data. A common set of data requirements needed to run the applications into groups of service, financial, and operational data was developed. The applications use standard definitions of data elements from the National Transit Database and Federal Transit Administration to streamline the data needed in the application with existing reporting requirements. The applications are designed for ease of use by small transit agencies with limited staff and different levels of training in data collection or financial management. The applications allow small transit agencies to specify aspects of service information to be used in cost allocation while relying on the applications to sort expenses into appropriate cost function categories, calculate costs by service type, and generate summary reports and performance metrics.

This empirical investigation attempts to enquire into the relationship among debt financing, agency cost and performance of Indian manufacturing firms. The study tries to document the impact of debt financing on firm performance in two different phases of panel data estimations. In the first phase, the study enquires the effect of debt on firms’ profitability measured by ‘return on equity’. The second phase tries to empirically explain the reason behind such impact by introducing agency cost. Considering the manufacturing firms traded in the BSE 200 Index from 2009–2016, the study documents a significant and negative effect of debt on firm performance. The magnitude of debt is also found to be positively affecting the agency cost measured by ‘general and administrative expenses’. So the negative effect of debt on firm performance is reinforced and justified as debt is also found to elevate the agency costs for the firms.

Patent pools can serve many purposes. Some of them are procompetitive while others anticompetitive. This article addresses one aspect of patent pools that has not received much attention—a patent pool’s role in stabilizing a cartel of downstream producers. The article first reviews the problem of cartel cheating, which threatens the stability of cartels. Any potential mechanisms that cartels can use to increase stability face three main challenges: (1) the cost of management, (2) agency costs, and (3) the requirement of secrecy. Our analysis shows that a vertically-related firm is an ideal candidate to manage a cartel. Our analysis has important implications for our understanding of patent pools. Because downstream producers were in a vertical relationship with a patent pool, they can create a patent pool to facilitate collusion. The article argues that the vertical licensor-licensee relationship gives a patent pool greater chances to evade antitrust scrutiny and more latitude in monitoring downstream producers’ performances. It also argues that the aggregation of patents in a patent pool would make it more effective in punishing cartel cheating. The article’s main finding that a patent pool is uniquely suited to manage a downstream cartel is a reminder that an overly permissive view of patent pools can invite anticompetitive hazards.

This study investigates the determinants of board of director compensation from the view of strategic management. Specifically, this study examines the association between product market competition and directors’ compensation for a sample of 524 listed firms in Malaysia from 2010 to 2014. We find that there is a positive relationship between a competitive firm and its compensation to its directors. Our research indicates that managerial incentives reflect more of talent appreciation, rather than purely for acknowledging better performance or a bigger size firm. This research contests the use of agency theory and managerialism in explaining directors’ compensation, especially for the developing country context of Malaysia. Our findings also imply that firms may pay higher compensation in a competitive market.

This study examines whether the agency cost component referred to as “residual loss” differs between nonprofit and shareholder-owned microfinance organizations and whether such costs are further influenced by CEO power. We use operating expenses, asset utilization, liquidity, and tangible asset intensity to proxy for residual loss. Using 374 microfinance organizations located in 76 countries, we find evidence that the residual loss is higher in microfinance organizations incorporated as nonprofits, but only if the CEO is powerful. Our empirical evidence illustrates the importance of installing proper governance mechanisms to minimize costs caused by high managerial power in the nonprofit sector. When CEOs are not powerful, nonprofits appear to have lower residual loss than for-profit organizations do, consistent with a motivated agent perspective. An important message of our study is that traditional agency theory perspectives might be ill-suited to analyze residual loss as a function of the nonprofit versus for-profit organizational form.

Public-private partnerships (PPPs) have been subjected to considerable public debate. In particular, this debate has concerned PPP financing and its implications. Using insights from agency theory, this study aims to develop a theoretical understanding of PPP financing. The following research question is investigated: How does the privatization of financing decrease or increase agency costs in social infrastructure PPPs? A comparative case study consisting of four Norwegian PPP projects with different financial configurations is undertaken. The findings suggest that the private sector is risk averse, increasing the cost of capital. In addition, private financing does not seem to have the intended incentive effect.

This article intends to review the theoretical aspects and empirical evidences made on agency theory. It is aimed to explore the main ideas, perspectives, problems and issues related to the agency theory through a literature survey. It discusses the theoretical aspects of agency theory and the various concepts and issues related to it and documents empirical evidences on the mechanisms that diminish the agency cost. The conflict of interest and agency cost arises due to the separation of ownership from control, different risk preferences, information asymmetry and moral hazards. The literatures have cited many solutions like strong ownership control, managerial ownership, independent board members and different committees can be useful in controlling the agency conflict and its cost. This literature survey will enlighten the practitioners and researchers in understanding, analysing the agency problem and will be helpful in mitigating the agency problem.

We examine the issuance choice across rights issues of equity, unit offerings, and standalone warrants and investigate the market reactions to these issue types. We find that agency costs, growth opportunities, and current funding needs relative to assets in place are prime drivers of the type of equity issuance choice. Managers use quality signals such as underpricing, underwriting status, and the proportion of funds raised by exercising warrants in determining the features of the warrant issue. Furthermore, we document that the market reacts more favorably to standalone warrants issues than units and equity during the rights offering period. Refereed/Peer-reviewed

This article examines the association between the equity concentration and agency costs as well as the impact of agency costs on performance of non-financial firms listed on the Saudi Stock Exchange (Tadawul). These relations are examined by using dynamic panel data and a two-step robust system estimation for the period 2010–2013. The study uses three proxy variables to measure agency costs. The results show that the equity concentration has no significant impact on agency costs, and the agency costs have no significant impact on firms’ performance. In addition, the study shows no evidence to support the agency theory in non-financial firms listed on the Saudi Stock Exchange (Tadawul). This study provides a better understanding of the association between equity concentration, agency costs and a firm’s performance.

This study aims to explore the influence of brand value on firm performance and shareholder wealth creation. This study is based on the top 100 brands ranked by Interbrand. This research article analyses the impact of brand value on firm performance both in terms of stock market performance and operating performance. This study uses panel regression data to understand valuation effects of brands. The results suggest that firms with superior operating performance have higher brand valuation effects. Higher brand valuation is a significant determinant of profitability. Brand quality leads to improved cash flow on account of the likelihood of repurchase. This study establishes the negative relationship between agency conflicts and brand value. The results support the belief that a marketer’s efforts on brand investments are a significant source of value-creating activity.

Information asymmetry in an employment relationship is much researched in the organization studies literature because of its consequences for employment contracts, compensation, and rent appropriation by the involved parties. However, its psychological antecedents have not been adequately addressed so far. We conceptually investigate the psychological drivers of supervisor–subordinate information asymmetry by primarily invoking social exchange theory. Whereas agency theory examines how information distribution is driven by self-interest seeking, social exchange theory emphasizes how individuals may be motivated to fulfill social obligations and not by exclusive self-interest seeking. This paper advances several propositions regarding the influence of a subordinate’s and supervisor’s psychological variables, such as relational identification, disposition for relational trust, assumed similarity, and the shaping techniques used by a supervisor on information asymmetry. In doing so, it highlights the underlying social exchange (social attraction and reciprocity), and the cognitive, affective, and behavioral processes. The influence of the psychological variables on information asymmetry may be moderated by contextual factors, such as interactional justice climate in teams, agency costs, and the type of employment relationship.

The effectiveness of monitoring and incentive alignment as mechanisms for controlling agency costs have been explored separately and in combination, with monitoring substituting for weaknesses in incentive alignment and vice versa; this equates to positive substitution when describing how monitoring and incentive alignment interact to influence shareholder agency costs. We draw upon behavioral agency theory and findings from finance research to offer further theoretical insight into how these mechanisms interact to influence agency costs. Our results suggest that CEO earnings management aimed at preserving their equity wealth (an incentive alignment mechanism) is accentuated by higher levels of concentrated institutional ownership, thereby imposing agency costs on less informed investors. Thus, in addition to being substitutes in controlling agency costs, as previously suggested, monitoring may accentuate the perverse effects of incentive alignment, equating to negative reinforcement, rather than positive substitution. Yet this effect is negated in the absence of CEO power due to dual occupation of the board and CEO roles. We discuss implications of these findings for theory and practice.

Employing data for 2001–2012, the article analyzes the factors impacting the wealth of Indian billionaires and the performance and innovative activity of firms which these billionaires represent. The analysis indicates that billionaires in rent-thick sectors have higher wealth levels, on average. As well, the evidence also supports lower wealth for self-made and entrepreneurial billionaires. The findings also reveal that self-interested actions by billionaires tend to raise agency costs, which, in turn, dampens profitability and firm value. Finally, there is evidence which suggests a tendency on the part of billionaires to block innovative activity.JEL Classification: D31, N35, P52

Family firms’ decisions to hire nonfamily managers are influenced by agency costs, socioemotional wealth concerns, and the availability of high–quality nonfamily managers in the labor pool. We hypothesize that owing to these factors, family ownership and intrafamily succession intentions will be negatively associated with the proportion of nonfamily managers in private small– and medium–sized (SME) family firms. However, firm size is hypothesized to positively moderate those relationships because as family firm size increases, the benefits of hiring nonfamily managers rise faster than the costs. Tobit regression analyses of 7,299 private SMEs support our hypotheses.

We evaluate the effect of highly salient disclosure of private college and university president compensation on subsequent donations. Using a differences-in-discontinuities approach to compare institutions that are highlighted in the Chronicle of Higher Education’s annual “top 10” list of most-highly compensated presidents against similar others, we find that appearing on a top 10 list is associated with reduced average donations of up to US$5.0 million in the first full fiscal year following disclosure, despite greater fund-raising by “top 10” schools. We also find some evidence that top 10 appearances are correlated with slower compensation growth and rising enrollment in subsequent years. We interpret these results as consistent with the hypothesis that donors care about compensation but are typically inattentive to pay levels. We discuss the implications of these findings for the regulation of nonprofits and for our broader understanding of the pay-setting process at for-profit as well as nonprofit organizations.

This paper investigates the roles of executive incentive structures in creating and mitigating investment-related agency costs. A model is developed which shows that underinvestment and overpayment of dividends are always expected to prevail when managers are offered short-term incentives, while overinvestment and underpayment of dividends are likely to exist when managers are offered long-term incentives. Using a large sample of non-financial US-listed firms over the period 1992–2009, it is found that managers underinvest and overpay dividends when offered vested stocks, but overinvest and underpay dividends when offered option incentives. An increase in these incentives, however, mitigates these problems. The results also suggest that, if properly constructed, long-term incentives might be superior to short-term incentives, and should be used alone in designing the optimal incentive package under certain conditions.

Recently, nationwide speed limit policy modifications have resulted in a general upward trend in many states, including Michigan. In Michigan legislation has been proposed to raise posted speed limits on limited access freeways for passenger vehicles and for trucks and buses. In response, research was performed to assess the economic impacts associated with speed limit policy alternatives under consideration. The economic assessment included estimation of the agency costs and user benefits and disbenefits for each proposed policy alternative, including those related to infrastructure modifications, fuel consumption, travel time, and fatal crash occurrence. Calculation of the benefit–cost ratios indicated several findings. First, scenarios that increased only the freeway truck and bus speed limit from 60 mph to 65 or 70 mph had favorable benefit–cost ratios (i.e., greater than 1) as long as diesel prices remained below approximately $3 per gallon and fatal crashes did not increase by more than one per year systemwide. However, implementation of the 75 or 80 mph maximum freeway speed limit for passenger vehicles (70 mph for trucks and buses) in general resulted in unfavorable benefit–cost ratios. The reasons in large part were the expected increase in fatal crash occurrence, coupled with substantial infrastructure costs associated with geometric modifications that ultimately would be necessary to achieve compliance with state and federal design speed requirements. Therefore, freeway speed limit increases should be considered only for segments that have low historical crash rates and where design speed compliance can be maintained in general without costly geometric upgrades.

The primary objectives of ramp metering are to reduce congestion on freeways by restricting the total flow entering the freeway and to discourage short-distance travelers from using the freeway. Life-cycle cost analysis of ramp-metering deployments has received attention in particular for identifying the strategy with the lowest cost. However, increasing concerns over the effects of congestion on the environment and increasing rates of accidents are urging decision makers to consider the environmental and social effects of ramp-metering deployments in addition to agency costs. This paper presents a high-level benefit–cost analysis framework for ramp-metering deployments. The framework was constructed in consideration of the triple bottom line of sustainability (i.e., economic, environmental, and social factors). More specifically, the framework is made up of four main components: ( a) life-cycle cost analysis, ( b) analysis of benefits achieved through travel time savings, ( c) analysis of benefits achieved through reductions in energy consumption, and ( d) analysis of benefits achieved through reductions in the number of accidents. A hypothetical case study is used to demonstrate the application of the framework. A sensitivity analysis is conducted to determine the effects of higher traffic demand on the benefits achieved. It is expected that the proposed framework can improve the high-level decision-making procedures of transportation agencies in regard to the deployment of ramp meters.

The market for credit lines (CLs) to mitigate the sudden stop of capital flows does not exist in practice. Why? Theoretical findings in this article are as follows. First, the basic reason lies in ‘additional’ agency costs. Second, externalities can play a role but only if agency costs are high. Third, funding liquidity is hardly a problem. Findings on the policy are as follows. Depending on the parameter values, it is an optimal policy to (a) enable the market for the relevant CLs, (b) enable this market and correct it for externalities or (c) let the market not exist. JEL Classification: F3, F4

The link between corporate philanthropy and firm value has been controversial. On one hand, corporate philanthropy is often criticized as an agency cost because it may serve narrow managerial self-interests. On the other hand, corporate philanthropy may enhance firm value because it improves the relationships between firms and their stakeholders. In this study, we argue that this controversy is contingent upon whether corporate governance mechanisms can stimulate the financial benefit of corporate philanthropy. Based on a sample of U.S. firms from 1996 to 2003, we find that CEO long-term pay positively moderates the relationship between corporate philanthropy and firm value while multiboard outside directors negatively moderate this relationship. Contrary to our expectations, we find that the relationship between corporate philanthropy and firm value enhances as CEO tenure increases. Our findings show that corporate governance plays an important moderating role in the relationship between corporate philanthropy and firm value.

Agency theory foments the expectation that corporate criminal prosecutions mitigate crime by inducing firms to self-regulate. Whether this bears out in reality remains a topic of contentious debate. Although the U.S. government began prosecuting firms over a century ago, insufficient empirical evidence exists to determine how the costs of prosecutions actually affect firms. Moreover, the limited empirical record tells a surprising and somewhat confusing story. Scholars of management and related disciplines have consistently found that criminal convictions have negligible impacts on shareholder wealth despite theoretical expectations to the contrary. To explain these surprising findings and better understand how firms experience the costs of prosecutions, I apply agency theory to the criminal prosecution process and propose that each legally defined action in that process communicates unique information regarding potential and actual agency costs (i.e., sanctions). I also propose that formal convictions appear to elicit no reaction from principals because firm responses to early events in the prosecution process, what I call “conviction harbingers,” foretell unfavorable verdicts and sanctions well before courts make them official. Findings derived from a sample of 177 cases largely confirm my expectations by showing that prosecutions cause firm value to decline nearly 11%. In addition to exceeding previous estimates by a factor of three, this amount exceeds direct fines by a factor of five (i.e., shareholders lost more than $5 of wealth for each dollar of sanctions). I conclude by outlining implications of these findings for agency theory, corporate governance, policy, and practice.

The components of chief executive officer (CEO) pay are numerous and complex. Top managers are hired to work in the shareholders’ interests, which are to maximize the wealth of the owners. But CEOs are human and are concerned in maximizing their own utility of wealth. This desire may run counter to the shareholders’ interests, resulting in agency costs. It appears that the complex manner in which a CEO is paid is designed to provide an incentive to the top manager to carry out the goals of stockholders and reduce agency problems.

This study develops a prediction model to investigate the probability of firms making a takeover bid. This model draws upon a number of firm characteristics, which can be categorized under three types of theory: agency costs, hubris behaviour and synergy motives. By examining a sample of 316 Australian publicly listed firms over the period 1999–2010, this study finds that bidding firms are significantly different from non-bidding firms in terms of their cash level, leverage, capital expenditure (long-term productivity growth) and management overconfidence level. Bidding firms are predisposed to enter into takeover activities because their management’s investment decisions are primarily driven by agency, hubris behaviour and synergy motives. The findings show that hubris behaviour is more dominant in influencing managers’ investment decisions in a takeover bid rather than agency or synergy motives.

This study investigates the governance attributes of firms that have been subject to securities class actions (SCAs). There has been a recent sizable increase in the number of firms subject to SCAs in Australia. We examine a sample of firms that have been subject to SCAs due to disclosure breaches and match the firms by industry and size to a control sample. First, we examine the compliance culture of the SCA firms via the frequency of Australian Securities Exchange (ASX) queries of the firm and find that the frequency of ASX queries is positively associated with the occurrence of a SCA. Secondly, we provide evidence that SCA firms exhibit weaker levels of corporate governance than the matched control sample. In addition, we contribute to the understanding of firms subject to SCAs and their corporate governance attributes. Our results suggest the presence of a nomination committee may be associated with higher agency costs and that the influence of CEO duality may reduce the effectiveness of a nomination committee.

Economic uncertainties have prompted transportation departments to consider cost-effective spending to reduce funding shortages. Although methods exist for identifying and prioritizing projects, there is need for analysis of long-range plans that consider stakeholder perspectives. This article compares two pairs of cost estimates: (a) modal agency cost estimates with (b) highway-only implementations and (c) regional Transportation Planning Organization (TPO) plans with (d) the state Department of Transportation (DOT) highway plan. This article develops methods to compare the perspectives of cost estimates for transportation improvements. The methods are adaptable to include both preliminary cost data and detailed life cycle cost data. The results aid in the prioritization of engineering and long-range planning efforts for projects that are expected to contribute to the goals of a variety of stakeholder investments. The methods support efforts for increasing accuracy and inclusion of life cycle costs into project estimates and employment of more sophisticated cost methodologies, such as cost-effectiveness and cost–benefit analysis.

This article develops a Hayekian perspective on social franchising that distinguishes between the end-connected logic of the small group and the rule-connected logic of the big group. Our key claim is that mission-driven social entrepreneurs often draw on the small-group logic when starting their social ventures and then face difficulties when the process of scaling shifts their operations toward a big-group logic. In this situation, social franchising offers a strategy to replicate the small group despite systemwide scaling, to mobilize decentrally accessible social capital, and to reduce agency costs through mechanisms of self-selection and self-monitoring. By employing a Hayekian perspective, we are thus able to offer an explanation as to why social franchising is a suitable scaling strategy for some social entrepreneurship organizations and not for others. We illustrate our work using the Ashoka Fellow Wellcome.

Heavy-duty pavement innovations developed through research for a major rehabilitation project in California were evaluated. The performance benefits of the innovations were examined, and the economic benefits from implementation of the pavement designs were analyzed. Benefits are presented through descriptions of the rehabilitation project, background on the development of long-life pavement rehabilitation innovations, and design requirements that limit permanent deformation (rutting) within the first 5 years of service. Results from field measurements confirmed that the innovative pavements met the performance criterion. The final results of a pilot study to quantify direct benefits stemming from accelerated pavement testing are presented. Cost–benefit analysis that included agency costs with and without road user costs was used, and the influence of the discount rate in net present value calculations is given. Road user costs had a significant influence on cost–benefit calculations, especially in the case of a heavily congested freeway. This influence led to cost savings ranging from $1.128 million to $121.570 million, which emphasized the importance of performing a sensitivity analysis instead of reporting a single estimate of savings and benefit–cost ratio. The final results showed clear field performance benefits of the pavement innovations and indicated positive economic benefits from the research that led to innovations.

The authors study whether managerial ownership and analyst coverage relate to audit fees. To the extent that these corporate governance factors relate to auditor assessment of the firm’s agency costs and hence various risks the auditor must consider in the development of an audit program, they will affect audit effort and hence audit fees. The authors find that managerial equity holdings and analyst coverage are negatively associated with audit fees and that these associations are both statistically and economically significant. On average, a 1% increase in managerial ownership translates into a 0.2% reduction in audit fees. In the low managerial ownership sample (i.e., less than 5% managerial ownership), a 1% increase in the ownership reduces the fees by 1.4%. Similarly, one more analyst following a company reduces audit fees by 9.3%. These results add to the literature on the effects of corporate governance on audit fees.

A significant amount of research has examined firms’ decisions to adopt poison pills; however, firms today are increasingly repealing or allowing poison pills to expire. Based on agency theory, the authors examine competing perspectives of governance mechanisms as having complementary or substitutive effects within the context of poison pill repeal. They test whether firms repeal poison pills when governance is strong (complementary effects) or allow for other governance mechanisms to compensate for potential agency costs associated with poison pill renewal (substitutive effects). Using a sample of 288 firms who made decisions to terminate or renew poison pills, the authors find that firms with CEO duality, fewer directors nominated by the CEO, and higher levels of outside director ownership and pressure-resistant institutional shareholdings are more likely to repeal poison pills. A curvilinear relationship between managerial ownership and poison pill repeal is also found. The results provide greater support for the notion that firms use governance mechanisms as complements rather than substitutes.

Researchers argue that analysts’ information acquisition efforts increase firm value by facilitating monitoring of firms’ activities and, thereby, reducing agency costs. However, prior research provides limited and inconclusive empirical evidence to support this argument. This article extends the literature by examining (a) the relationship between analyst following and the value of firms’ equity securities and (b) given a positive relationship, whether that relationship reflects effectively enhanced monitoring of firms’ activities as a result of analysts’ information acquisition efforts. The authors document a positive relationship between analyst following and firms’ asset values, and they find support for two hypotheses regarding the source of the increased asset values. First, the cash component drives the positive relationship between analyst following and asset values. The authors interpret this evidence to imply a stronger monitoring effect for assets that are subject to higher agency costs or information asymmetry. Second, consistent with analyst following constraining asset mismanagement or motivating more efficient asset use, operating performance and total cash payout increase with analyst following. Overall, the results suggest that financial analysts facilitate more effective monitoring of firms’ activities and, thereby, reduce agency costs and increase shareholder value.

This study examines the discretionary accruals quality of single- and multiple-segment firms. The authors hypothesize and find that the discretionary accruals quality is lower for multiple-segment firms than single-segment firms, and for the same level of discretionary accruals quality, the cost of capital is higher for multiple-segment firms than single-segment firms. These findings suggest that more severe agency problems in multiple-segment firms compared with single-segment firms may lead to poor discretionary accruals quality and agency risk is priced-in as a higher cost of capital.

This article examines the effect of managerial ownership ( MO) on the cost of debt as measured by the interest rate spread on corporate bonds for Japanese firms. First, the authors find that the MO is positively associated with interest rate spread after controlling for the other Japanese ownership structure, cross-shareholdings, and the stable shareholdings by financial institutions. Second, by employing factor analysis to measure the agency cost of debt ( ACD) based on financial variables, the authors also find that MO has higher correlation with interest rate spread when the ACD at the time of bond issue is already larger. The results are robust to additional analyses, including the possibility of nonlinear relationship, bond rating, endogeneity problem, and Fama and MacBeth approach. The results suggest that prospective bondholders use MO information to anticipate a firm’s future ACD and estimate it higher when the current ACD at issuing bond is already larger. The results also suggest that accounting information is useful to estimate the ACD and increase the efficiency of bond contracting. Finally, although previous studies are often prone to emphasizing the findings on the Japanese unique ownership structure, the results of this article reveal that traditional agency theory on MO apply to Japanese bond market, which is consistent with the findings of U.S. firms.

This study examines the impact of family involvement in ownership and control on firms’ R&D intensity, relying on panel data on publicly held firms in Canada over the 2004 to 2009 time period. The literature on the link between family firms and R&D is unclear: although some characteristics may promote R&D intensity in family firms, others factors may have a negative effect. Thus, the authors propose a theoretical framework whereby differences in R&D intensity between family and nonfamily firms are explained based on key conditions, including time horizon, agency costs, resource endowment, or risk-taking behavior. The findings of this study show that publicly traded family firms in Canada record lower R&D intensity compared with nonfamily firms and, therefore, support one side of the previous literature over the other.

Road asset management is a systematic process of maintaining, upgrading, and operating road assets cost-effectively. Several thousand kilometers of rural roads have been constructed during the past few years in India. The performance of these newly constructed roads under actual traffic, climate, and environmental conditions will be monitored periodically; and a database with data on their performance will be created. The database can be used in planning and scheduling of maintenance activities to preserve the rural road infrastructure by use of sound engineering principles. This paper is an attempt to highlight the various issues that need special attention to preserve the rural road infrastructure assets that are created in the country. The paper presents the effect of timing of maintenance on the pavement condition during the design life and the increased agency cost due to the delay in maintenance intervention. The application of computer-based pavement management tools such as the Highway Development and Management Tool in planning and scheduling of appropriate maintenance strategies is highlighted.

The first attempt to develop and implement an optimization module to minimize agency costs and vehicle operating costs in the Western Cape, South Africa, was considered unsuccessful. Routines incorporated the current roughness of the road; deterioration as a result of traffic, climate, and materials; and improvement in roughness after the road was bladed and calculated the blading sequence of road sections in a road network. Lessons about both appropriate principles and practical issues learned in the development process highlighted that generalization of gravel road deterioration can lead to incorrect decisions. Although computerized routines are of value, the complexities and variability of maintenance requirements suggest that optimization of grader maintenance is a reiterative process into which local knowledge, all constraints and variables, as well as computer technology must be incorporated. This paper describes a revised practical approach and process for the development of a grader maintenance business plan. The process has been implemented with success by road authorities in southern Africa and will be published as a best practice in the TRH 20 national guideline document, Technical Recommendations for Highways: Structural Design, Construction, and Maintenance of Unsealed Roads.

Pavement maintenance decisions are based on skimpy rules and rules of thumb. Generally, the selection of roads for maintenance is based on a worst-first policy. The timing of maintenance intervention and standards adopted for maintenance govern the service life of the pavement. The rate of pavement deterioration depends on the timing of maintenance intervention, choice of the type of maintenance treatment, and the quality of the construction. In the present investigation, the periodic performance data of typical low-volume rural roads constructed under the rural road development programs in India are considered. Performance prediction models are developed. The models are used to predict the performance during the design life. Different maintenance interventions are considered at different pavement conditions. The effect of the timing of maintenance on agency costs and vehicle operation costs is quantified and presented.

Using a proprietary database for the largest 158 European companies during 1999-2004, I find that transparency of executive pay disclosures and sensitivity of executive pay to performance increase with the proportion of top executives serving as company directors and with dual chief executive officer (CEO) and board chairs. These relations strengthen in countries with more protection for outside shareholders. The positive marginal effects of executive directors (i.e., insiders) on transparency of pay disclosures and sensitivity of pay to performance are not significant when (1) insiders already have the numerical majority on boards, (2) CEOs are board chairs, and (3) pay levels and company ownership of executives are relatively high. Overall, the evidence supports the optimal-contracting argument over the rent-seeking argument. Specifically, companies mitigate agency costs associated with the existence of company executives on boards through transparent pay disclosures and incentive compensation. However, such actions are limited to companies with strong country-level investor protection and significant representation of independent directors on company boards.

The authors present empirical evidence of how family ownership and control affect the demand for audit quality measured by audit firm size in a sample of small private firms. The results indicate that family-held or -controlled firms are less likely to use Big 4 auditors than nonfamily firms and that an increase in family ownership decreases the likelihood of a Big 4 audit. The results imply that the less concentrated family ownership is, the more need there is for outside control mechanisms because of higher agency costs. The results imply that family influence increases firms’ incentives to employ Big 4 audit firms, thereby increasing the credibility of their financial statements vis-à-vis outside stakeholders.

The microfinance sector is an important ingredient in the process of global integration of the financial markets. The rapid development of the microfinance sector in many developing countries motivated prominent donors to develop systems for standardised and comparable reporting of financial and social performance. This effort has yielded substantial results in terms of promoting transparency, reducing information asymmetries and mitigating agency conflicts in an industry vulnerable to such problems. The article discusses these problems and the steps initiated by the industry to overcome them. We also point to conflicts of interests that may persist because the information platform and the indicators that are being reported are managed and selected by the industry itself. In particular, we use a common indicator of performance, the Operational Self-Sufficiency Index, to highlight the tendency of selected indicators to overstate performance and understate subsidies and costs.

This article presents empirical evidence on the agency costs of debt in private family firms by examining the explicit (interest rate) as well as implicit (business and personal collateral) bank loan price simultaneously. Using a cross sectional sample of lines-of-credit of the NSSBF database, family firms appear to be more likely to pledge personal collateral which suggests that agency costs of debt are higher in family firms. Hence, personal collateral seems to be a better instrument than interest rates or business collateral for financial institutions to cope with the specific agency problems (e.g. self-control problems and negative effects of parental altruism) in family firms.

Although the selection of suitable franchisees has been identified as an important dimension of success of a Franchise Network, the same has been at the best a subjective process. This study is amongst the first studies, in the Indian context, which relates the selection criteria used by the franchisors in the selection of potential franchisees to their behavioural outcomes that the franchisors desire. It also provides direction to use prudent selection criteria as an input control strategy. This study has empirically demonstrated that well-chosen selection criteria can explain a significant component of variance in the franchisee behaviour. Moreover, the study also alludes that the franchisors should be able to identify and select franchisees which are more likely to perceive their relationship with the franchisors to be more cooperative and behave less opportunistically. In fact, the franchisees with favourable dispositions and desirable characteristics can lower the agency costs to the franchisors in the form of less safeguarding and monitoring costs.