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Manufacturing companies in Indonesia are large-scale companies and dominate the Indonesia Stock Exchange. The number of companies listed on the stock exchange is increase every year, which results in more people having the opportunity to own a company. The spread of more investors who own the company makes conflict between owners even higher. The purpose of this study is to determine the effect of agency cost proxied by insider ownership, dispersion of ownership, free cash flow, and collateralizable assets on dividend policies of manufacturing companies in Indonesia. Data in the form of secondary data in the form of financial reports and annual reports for the period 2012-2019. The data used multiple linear regression statistical analysis techniques. The results of this study show that agency cost, which is proxied by dispersion ownership, free cash flow and collateralizable assets, has a positive effect on dividend policy. A firm in its operational activities, carries out agency relationships. Agency problems arise when an agent acts not in accordance with the principal's interests, which causes a conflict of interest between the principal and agent. Agency problems will increase agency cost. The agency problem can be reduced by the dividend payment mechanism, namely by increasing the proportion of dividend payments from company profits for stockholders. In contrast to insider ownership which does not affect dividend decisions because the percentage of company ownership owned by insiders is limited in Indonesia.

PurposeThe author examines the role of board structure and institutional investors in dealing with the agency issues for the Indian firms by taking the data of NSE-500 nonfinancial firms for the period 2010–2019.Design/methodology/approachThe author applies dynamic panel data methodology to deal with endogeneity concerns prevalent in corporate finance variables.FindingsThe agency view is consistent with the board size in the context of India. The author observed that the board size has a harmful effect on agency cost. A larger board size may create a coordination problem, or CEO may find it easy to thrust his or her decisions on board. The author also noticed that firms should have sizeable institutional ownership, particularly pressure-insensitive investors, in equity as they can reduce agency-related issues.Originality/valueThis study focuses on one of the largest emerging economies, i.e. India.

This paper investigates the impact of herding behaviour of Chinese Securities Investment Funds (SIFs) on firm value by taking stock price informativeness and agency cost as intermediary variables. ...

Over the past few years, scholarly interest in corporate social responsibility (CSR) has been increasing. However, research on the relationship between CSR and firm performance has revealed a complicated relationship. In this paper, we argue that part of the basis for the generally positive relationship between CSR and firm performance might come from a reduction in agency costs. Relying on behavioral agency theory, we construct a model in which CSR moderates the impact of the agency problem on specific firm outcomes, including firm performance, the use of stock options, and goodwill. Based on panel data of publicly traded U.S. firms from 1999 to 2013, we find support for that model. These findings suggest the role of CSR in improving corporate governance efficiency through mitigating agency problems inside the firm.

The economy is an essential factor in constructing a resilient city, and listed companies play a vital role in the local economy. From the microbehavior of corporate governance, we examine the relationship among corporate governance, agency costs, and corporate sustainable development for a panel sample of 690 state-owned firms in China during 2015–2019. We found that agency costs mediate the relationship between board size, management compensation, debt ratio, dividend policy, and corporate sustainable development. Specifically, decreasing the board size can reduce agency costs and enhance the company’s sustainable development capabilities. The existing compensation system is to the disadvantage of the sustainable development of the company. Increasing the salaries of managers will increase agency costs and reduce the company’s ability to develop sustainably. Although increasing liabilities can reduce agency costs, increasing liabilities will increase financial risks. The bankruptcy costs caused by increasing liabilities are more significant than agency costs, which leads to a decline in the company’s ability to develop sustainably. The implementation of cash dividend policies will help reduce agency costs, thereby increasing their sustainable development capabilities. This also provides new ideas for the Modigliani–Miller (MM) theory and agency cost theory.

The effect of family control, agency cost and financial risk on firm value in company listed on the IDX. Three independent variable this research is family control, agency cost and financial risk and dependendt variabel is company value, and control variable is propability. The sample of this research consisted 100 companies, and technique using rendom sampling method. The result this research indicate that family control has a negative and significant effect on firm value. Agency cost and financial risk do not effect the firm value. And probability has a positive and significant effect on firm value

Purpose This study aims to analyze the influence of firm characteristics in dividend payout in a concentrated ownership setting. Design/methodology/approach This study is probably the first to use the lasso technique for model selection and error prediction in the study of dividend payout in India. The lasso method comprises subsampling the available data set and performing reiterative regressions on those samples to generate the model with the best fit. This study incorporates four different ways of performing lasso treatment to get the best fit among them. Findings This study analyzes the influence of firm characteristics on dividend payout in the Indian context and asserts that firms with growth potential and earnings volatility do not hesitate to cut dividends. This study does not find evidence for signaling, agency cost and life cycle theories in a concentrated ownership setting. Earnings is the single most important factor to have a positive influence on dividend, while excessively leveraged firms are restrictive of dividend payout. Taxation has a prominent role in altering the way firms pay dividend. Research limitations/implications The recent changes in buyback taxation offer another opportunity to test the reactive behavior of firms. Also, given the disregard for traditional motivations, further research needs to be done to determine if dividend adjustments (on the lower side) help enhance firm value or not. Practical implications This study may help investors view dividends in a proper perspective. Firms give importance to investments over dividends and thus investors need not dwell on dividend changes if firms fulfill their growth potential. Social implications It lends perspective to investors about dividend changes and its importance. Originality/value The methodology used for analysis is absolutely original in the literature pertaining to dividend policy in the Indian context. The literature is abundant with theories advocating or opposing the eminence of dividend payout; however, this study takes a holistic view of all influential dividend determinants in literature to understand dividend payout.

Refereed/Peer-reviewed Growing public concerns about sustainability and adopting environmentally responsible practices increase risks as well as opportunities for firms and banks. It is unclear whether being environmentally responsible matters for unlisted firms, which are significant contributors to the degradation of the environment but which are not under strict scrutiny like public listed firms. Using a sample of 3915 firms from developing economies, we investigate whether the superior environmental performance of unlisted firms leads them to better loan conditions. After controlling for endogeneity and sample selection bias, we find that firms with better environmental performance received approximately 6.4% higher loans (as a ratio of total sales) and that this effect is more prominent in small and medium firms. This finding supports an information asymmetry view of agency costs. Our results, however, show that environmental performance does not affect loan duration and collateral requirement, indicating no spillover economic effect of corporate environmental performance on loan conditions. This partially supports a new perspective of legitimacy theory in relation to the ‘greenwash strategy’. Overall, our study shows that strategically engaged environmental activities that are integrated with core business objectives represent an important business strategy for firms to enhance credit access.

This article is about agency relationship which formed due to the delegation of part of the powers of shareholders to employees. Also, this article is about the emergence of an agency problem which is aggravated by behavioral and environmental factors. The main reason of the agency problem is the separation of ownership from control. The divergence of interests between owners and managers leads to an increase in agency costs in this area. The central issue in the theory of agency relations is agency costs. The purpose of the study is to analyze the history of the development of the theory of corporate governance and the theory of agency relations. The relevance of the agency problem and the problem of corporate governance lies in the study of theoretical and practical research of agency costs, sources and factors which influence on the investment activities of the company. As a result of the study, the emergence and formation of the concept of agency costs were considered

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.

The study examines the relationship between stock liquidity and the firms' use of short‐term debt. In addition, this study examines the impact of agency costs on this relationship and also documents whether large shareholding acts as a transmission channel through which stock liquidity may influence the use of short‐term debt. The study is based on secondary financial data of non‐financial Indian companies obtained from Center for Monitoring of Indian Economy Prowess database, pertaining to a period of 18 years (2000–2018). This study employs two‐step generalized method of moments (GMM) techniques to arrive at results. Results of the study confirm that firms' use of short‐term debt is negatively associated with stock liquidity. Additionally, we found that this relation is more pronounced for firms subjected to severe agency problems. We also find that large shareholding acts as a transmission channel through which stock market liquidity may influence the use of short‐term debt.

PurposeSmall- and medium-sized enterprises (SMEs) depend on a large measure on commercial banks for external capital, and US SMEs are increasingly experiencing bank credit constraints and resorting to costly alternatives. The purpose of this paper is to investigate the impact of lender organizational complexity on SME financing shortfalls. In particular, it examines the credit shortage effects associated with the SME's reliance on bank holding company (BHC) owned, as opposed to independent, lenders.Design/methodology/approachBuilding on agency–theoretic rationales, the authors posit that both hierarchical and horizontal complexity associated with present-day BHC structures will diminish an affiliated bank's ability and willingness to properly underwrite SME credit needs. Consequently, they hypothesize that SMEs whose commercial lenders are BHC affiliates are likely to experience greater credit shortages. This hypothesis was tested using exhaustive financial data from a large and nationally representative sample of US SMEs.FindingsGreater SME reliance on loans from BHC lenders was found to be associated with a greater use of late trade–credit payments. The latter is an expensive form of financing and a generally accepted indicator of shortages in conventional (and cheaper) bank credit.Originality/valueDespite the evolution toward more complex bank organizational forms, especially among community banks, the implications for SME lending are not yet fully understood. This paper's contribution is to offer a first examination of the impact of post-deregulation BHC structures on SME financing shortfalls.

This paper examines the impact of product market competition on the dividend policy of Indian firms. We have taken product market competition as the proxy of external corporate governance. This study has used 1142 non-financial, non-utility, and non-government Indian firms listed in NSE from 2001 to 2018. For the purpose, five different product market competition and three various dividend measures were employed. Also, the interaction between product market competition (external) and board corporate governance (internal) on dividend policy was examined using a newly developed board corporate governance index (BCGI). The findings suggest that non-competitive firms are more likely to pay higher dividends than competitive firms. Non-competitive firms face more significant agency problems and therefore, pay higher dividends than competitive firms. Finally, the study found that the influence of internal corporate governance on dividends to be much higher and significant in the case of non-competitive firms compared to competitive firms. Overall, the findings of this study offer consistent evidence that external corporate governance and dividend policy are substitutes, and higher agency costs and higher internal governance strengthens this relationship. The outcomes of this study can help the managers to more precisely take dividend decisions by looking at the competition level in the market. The results suggest that managers should pay less dividends when firms operate in a high-competitive industry and vice-versa. The policymakers should design corporate governance norms after considering the competitiveness of the industry.

Job rotation inside an organization creates two conflicting effects. It disciplines agents by creating the fear that their successors may discover and report their hidden information. Thus, the agent takes actions that align with the principal’s objective. However, job rotation can create a moral hazard problem. If information is soft and therefore, nonverifiable, the principal cannot attribute blame to the agent or the successor. Agents shirk, thereby hurting performance. Thus, the importance of disciplining versus moral hazard effects depends on the availability of hard information. Using unique loan-level data, we show that job rotation hinders performance when the information is soft. This paper was accepted by Giesecke Kay, finance.

PurposeThe purpose of this study is to examine the relationships between leverage and firm’s performance in Malaysia by framing the relationship under the tradeoff theory and agency cost theory.Design/methodology/approachBased on insights drawn from the existing literature, we opted for fixed effects and system two-steps GMM models to establish the hypothesized relationship between leverage and performance. We analyzed 528 nonfinancial firms listed on the Bursa Malaysia Stock exchange for the period of 12 years (2005–2016).FindingsThe outcomes show that the leverage ratio improves the firm performance, consistent with leverage serving as an effective strategy in constraining managers from building their personal empire, revealing a proportionately greater benefit for Malaysian firms than the cost to debt financing. The authors also find that a positive relationship between leverage and firm performance switch to the negative when the level of leverage reaches beyond the optimal level. Consequently, switching from positive to negative indicates that debt has a twofold (nonlinear) impact on firm performance.Practical implicationsOur research provides several implications to potential stakeholders. For investors, firms having lower leverage ratios could achieve superior performance, thus investing in corporations pursuing higher performance. Managers should therefore strive for achieving higher performance to meet the needs of investors and shareholders. From the researcher’s perspective, our research suggests the need to go away from the searching linear association between leverage and firm performance and the relevance of nonlinear correlation. Moreover, our research can help managers to understand how their lender relates to their debt to assets ratios. Thus, they can design an optimal level of leverage that not only improves the firm’s performance but also reduce the associated costs.Originality/valueTo the best of the author’s knowledge, this is the initial attempt in the context of Malaysia that documents evidence indicating that the lower leverage is likely to create value for shareholders while a higher debt ratio reduces firm profitability.

We explore the role of female directors in mitigating CEO luck. CEOs are “lucky” when they receive stock option grants on days when the stock price is the lowest in the month of the grant, implying opportunistic timing. Our results show that board gender diversity significantly deters the opportunistic timing of option grants. The effect of board gender diversity is 17.19% stronger than that of board independence in reducing CEO luck. Board gender diversity plays an effective governance role, even more effective than board independence does. Our results support the benefits of board gender diversity in mitigating the agency cost.

Introduction. Significantly important factors that define the company's efficiency are the structure of proprietorship and capital structure. Therefore, the item of the relationship between these factors is reflected in the works of scientists. The necessary issue is the pick of correlation between own and borrowed funds since the optimum structure of capital leads to magnification of the market value based on company performance results. The relevance of deciding on the capital structure determines the feasibility of determining the effect of concentrated ownership on capital structure. In an unstable political, social, legal, and economic environment, ownership concentration turns into a compensatory mechanism that fills numerous institutional gaps. Concentrated possession enables it possible to influence the capital structure through agency costs. Aim and tasks. The main purpose of the article is to determine the link between concentration level of ownership and capital structure, between ownership structure and leverage. This paper substantiates the problem of “principal-agent” to identify problematic issues to further develop recommendations to strengthen appropriate market incentives. Results. The paper shows that the problem of the “principal-agent” exists independently of the rate of ownership concentration in the corporation. Agency costs are one of the determining factors in the composition of a corporation’s capital. This paper has clearly shown approaches to identifying the nature of the effect of ownership structure on the capital structure. It has been established how this influence is carried out, taking into account the mismatch of various groups of owners' interests and the effect of their “entrenching”, as well as the consequences of monitoring and expropriation with a highly concentrated structure of ownership. Conclusions. The choice of the ratio of own and borrowed funds depends on the actual ownership structure. Assumptions are made, the increase in the corporation's leverage owing to an increase in the blockholders shares. There is a reciprocal interconnection between leverage and agency costs. Because changing leverage is an instrument that helps to overcome agency conflicts and not just only proves is the result of their presence. The selected special characteristics gave grounds to conclude that the adjustment of the ratio of a company's debt to the value of its equity also depends on the goal of management solutions, as well as the current facility and prospects of the corporation.

PurposeThe purpose of this paper is to explore the impact of national culture on leverage speed of adjustment (SOA) across countries.Design/methodology/approachWe use a partial adjustment model to estimate the impact of national culture (assessed using Hofstede's six cultural dimensions) on leverage SOA.FindingsWe find that culture does significantly affect the degree to which firms deviate from target debt level and the speed of adjustment (SOA) of leverage. High power distance, individualism and masculinity are associated with a slower SOA, while high long-term orientation, uncertainty avoidance and indulgence result in a faster SOA. Additionally, cultural characteristics affect leverage SOA differently when firms are underlevered versus overlevered and when firms have small versus large deviations from the target level of debt. We suggest that these effects can be explained by agency motives.Research limitations/implicationsThe results of the study are based on available information for firms from 53 countries.Originality/valueThis study is, to the best of our knowledge, the first to examine the impact of national cultural traits on leverage SOA in international settings.

Given that the importance of stabilization of the agency theory as a base to organize the relationship between the shareholders "the origin" and the management "the agent" in the business environment nowadays, this study aimed to identify the impact of the chief executive officer "CEO" power on the agency costs in the Libyan private banks. To achieve this goal the study underlying the scarcity of related previous studies has stated its hypotheses. The study sample consists of (6) private banks for (5) years; then the study relied upon the multiple regression technique, which has been used to examine the fourth sub-hypotheses of the main one. As a result, the study became able to state that there is a positive significant relationship between the CEO ownership in the bank shares and the agency costs, while that there is no significant relationship between the duality of CEO role, the duration of CEO in his position, the independency of the board of directors and the agency costs in the Libyan private banks.

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.

Faultlines can affect a board of director’s effectiveness in supervising senior managers, which in turn affects the value of a company’s cash holdings. Based on sample data from Chinese A-share listed companies from 2004 to 2016, we examine the relationship between board faultlines and the value of cash holdings. The empirical results indicate that board faultlines have a significant inhibitory effect on cash holding value. This inhibitory effect is stronger for board faultlines resulting from deep-level attributes. Furthermore, the inhibitory effect of board faultlines is stronger in state-owned enterprises (SOEs) than in non-SOEs. As an important governance mechanism, management shareholdings can reduce agency costs and mitigate the negative impact of board fissures on cash holdings. Overall, we enrich the literature on the economic consequences of board faultlines and their influence on cash holding value. We also offer companies practical suggestions for improving the supervisory mechanism of their board of directors.

We propose a supplementary way to assess the information content of a financial statement disclosure based on the comovement of asset returns in different markets in response to information that has price implications for both. The influence of a signal that strongly influences at least two asset markets measures a dimension of information content less clearly reflected in single‐market responses. We apply our method to debt covenant violation (DCV) disclosures. These are the outcome of a debt renegotiation when the covenant promises in a debt agreement to manage the agency costs of debt are broken. We find that stock and bond return comovement is highest one day before DCV disclosure and differs depending on whether the debt covenant is waived or not waived. We find that stock and bond return comovement in the days following a DCV disclosure decreases more for non‐waiver disclosures than for waiver disclosures. This supports the theory that a non‐waiver outcome shifts control rights and bargaining power to the creditors. Consistent with this theory, single‐market tests show that bonds with a non‐waiver disclosure versus a waiver disclosure earn positive excess returns following a DCV disclosure whereas the reverse is true for stocks.

We study the effects of a mandated increase in disclosure in a setting where managerial responses are particularly observable: mutual funds. We conjecture that mandating portfolio disclosure can harm some mutual fund investors. Portfolio disclosure imposes skill reassessment risks on fund managers which in turn translate into agency costs to investors, especially for funds characterized with high levels of ex-ante managerial skill uncertainty. Using a regulatory change that mandated more frequent portfolio disclosure as a natural experiment, we show that funds with high levels of ex-ante managerial skill uncertainty responded to the regulatory change with an increase in management fees and a decrease in risk taking behavior, relative to funds with low levels of ex-ante managerial skill uncertainty. These actions ultimately get transmitted to fund investors in the form of inferior net performance. Our findings shed new light on the costs of disclosure, as well as providing evidence on disclosure, agency, and governance issues of the investment management industry. * Mailing Addresses: Teodor Dyakov, Department of Finance, Faculty of Economics and Business Administration, VU University Amsterdam, 1081 HV Amsterdam, E-mail: t.dyakov@vu.nl; Jarrad Harford, Department of Finance, Foster School of Business, University of Washington, Seattle, WA 98195-3226, USA, E-mail: jarrad@uw.edu; Buhui Qiu, Discipline of Finance, The University of Sydney Business School, The University of Sydney, NSW 2006, Australia, E-mail: b.qiu@econ.usyd.edu.au. We would like to thank Ying Gan, Yaniv Grinstein, Joshua Madsen, Christopher Polk, Mathijs van Dijk, session participants at 2015 Financial Accounting and Reporting Section (FARS) Midyear Meeting, and seminar participants at Erasmus University and VU University Amsterdam for helpful comments and suggestions. All errors are our own.