Factors Influencing Agency Costs in the Publicly Listed IT Firms: Evidence from Bangladesh
##plugins.themes.bootstrap3.article.sidebar##
##plugins.themes.bootstrap3.article.main##
Abstract
The primary goal of this research is to identify the factors that influence agency costs in publicly listed IT firms in Bangladesh. The research is based on secondary data obtained from nine IT firms listed on the Dhaka Stock Exchange (DSE) between 2018 and 2021, providing thirty-five firm-year observations. The effects of eight independent factors: board size, firm size, female directors, independent directors, managerial ownership, foreign ownership, institutional ownership, and leverage are examined in this study. For measuring the agency costs, the Asset Utilization Ratio (AUR) and Expense Ratio (EXR) have been employed as proxies. An ordinary least square (OLS) regression model has been used to test the hypothesized model. The study findings indicate that managerial ownership and institutional ownership are inversely and significantly associated with agency costs. In contrast, the board size, independent directors, and foreign ownership have a direct and significant relationship with agency costs. However, the relationship between agency costs and leverage or firm size cannot be determined. Besides, no statistically significant association has been found between female directors and agency costs. Being the first of its kind, the research findings can assist policymakers figure out what causes agency costs in IT firms and then take the right steps to reduce them.
Downloads
##plugins.themes.bootstrap3.article.details##
Copyright (c) 2023 Muntaqim Chowdhury, Imroz Mahmud, Md. Mehrabul Hoque
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
References
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.
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: empirical evidence of Pakistani listed companies. Business, Management and Economics Research, 1(6), 79-91.
Baykara, S., & Baykara, B. (2021). THE IMPACT OF AGENCY COSTS ON FIRM PERFORMANCE: AN ANALYSIS ON BIST SME FIRMS. Press Academia Procedia, 14(1), 28-32.
Beiner, S., Drobetz, W., Schmid, M. M., & Zimmermann, H. (2006). An integrated framework of corporate governance and firm valuation. European financial management, 12(2), 249-283.
Boubakri, N., Cosset, J. C., & Saffar, W. (2013). The role of state and foreign owners in corporate risk-taking: Evidence from privatization. Journal of Financial Economics, 108(3), 641-658.
Bowerman, B. L., & O'Connell, R. T. (1990). Linear statistical models: An applied approach. Boston: PWS-Kent Pub. Co.
Boyle, G., & Ji, X. (2013). New Zealand corporate boards in transition: Composition, activity and incentives between 1995 and 2010. Pacific Accounting Review. 25(3), 235-258.
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, M. 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.
Chen, Z., Du, J., Li, D., & Ouyang, R. (2013). Does foreign institutional ownership increase return volatility? Evidence from China. Journal of Banking & Finance, 37(2), 660-669.
Chinelo, E. O., & Iyiegbuniwe, W. (2018). Ownership structure, corporate governance and agency cost of manufacturing companies in Nigeria. Research Journal of Finance and Accounting, 9(16), 16-26.
Choi, Y., & Choi, J. (2013). The foreign ownership and the debt maturity structure. International Journal of Digital Content Technology and its Applications, 7(13), 491.
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
Eisenberg, T., Sundgren, S., & Wells, M. T. (1998). Larger board size and decreasing firm value in small firms. Journal of financial economics, 48(1), 35-54.
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.
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.
Gul, S., Sajid, M., Razzaq, N., & Afzal, F. (2012). Agency cost, corporate governance and ownership structure: the case of Pakistan. International Journal of Business and Social Science, Vol. 3 No. 9, pp. 268–277
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. In Proceedings of the 2007 Annual Meeting of the Financial Management Association, Orlando, FL, October (Online) (pp. 17-20).
Huang, R. D., & Shiu, C. Y. (2009). Local effects of foreign ownership in an emerging financial market: Evidence from qualified foreign institutional investors in Taiwan. Financial Management, 38(3), 567-602.
Huu Nguyen, A., Thuy Doan, D., & Ha Nguyen, L. (2020). Corporate governance and agency cost: Empirical evidence from Vietnam. Journal of Risk and Financial Management, 13(5), 103.
Ibrahim, H., & Samad, F. A. (2011). Corporate governance mechanisms and performance of public-listed family-ownership in Malaysia. International Journal of Economics and Finance, 3(1), 105-115.
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American economic review, 76(2), 323-329.
Jensen, M. C., and Meckling W. H. (1976). Theory of the firm: Managerial behavior, agency costs and capital structure, Journal of Financial Economics, 3, 305-360.
Kamal, M., Saha, N., & Hossain, J. (2019). ICT among 6 promising sectors in Bangladesh that can help earn $60bn by 2023. http://dhakacourier.com.bd/. Retrieved 4 September 2022, from https://dhakacourier.com.bd/index.php/news/Reportage/ICT-among-6-promising-sectors-in-Bangladesh-that-can-help-earn-$60bn-by-2023/1858.
Kamyabi, Y., Yazdi, H. M., & Ashae, A. (2014). The impact of corporate governance and ownership structure on agency cost in listed companies of Tehran Stock Exchange. International SAMANM Journal of Finance and Accounting, 2(2), 35-47.
Kayo, E. K., & Kimura, H. (2011). Hierarchical determinants of capital structure. Journal of banking & finance, 35(2), 358-371.
Liu, Y., Miletkov, M. K., Wei, Z., & Yang, T. (2015). Board independence and firm performance in China. Journal of corporate Finance, 30, 223-244.
Lu, S. L., & Li, Y. H. (2019). 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.
Moez, D. (2018). Agency costs, corporate governance and the nature of controlling shareholders: Evidence from French listed firms. International Journal of Accounting and Financial Reporting, 8(3), 256-277.
Mustapha, M., & Ahmad, A. C. (2011). Agency theory and managerial ownership: evidence from Malaysia. Managerial Auditing Journal.
Neter, J., Wasserman, W., & Kutner, M. H. (1989). Applied Linear Regression Models. Homewood: Richard D. Irwin, Inc
Nguyen, P. (2012). The impact of foreign investors on the risk-taking of Japanese firms. Journal of the Japanese and International Economies, 26(2), 233-248.
Nguyen, T. T. M., 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.
Pearce, J. A., & Zahra, S. A. (1991). The relative power of CEOs and boards of directors: Associations with corporate performance. Strategic management journal, 12(2), 135-153.
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. (2011). Corporate governance in Bangladesh: a quest for the accountability or legitimacy crisis?. In Accounting in Asia (Vol. 11, pp. 1-34). Emerald Group Publishing Limited.
Romalis, J. (2011). The value of foreign ownership. Economic and Business Review, 13(1).
Singh, M., & Davidson III, 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.
Sobhan, R., Chowdhury, M. (2022). Determinants of Agency Costs: Evidence from Non-Bank Financial Institutions of Bangladesh. International Journal of Management, Accounting and Economics, 9(2), 68-84.
Tuan, T. M., Nha, P. V. T., & Phuong, T. T. (2019). Impact of agency costs on firm performance: evidence from Vietnam. Organizations and Markets in Emerging Economies, 10(2), 294-309.
Uadiale, O. M. (2010). The impact of board structure on corporate financial performance in Nigeria. International Journal of Business and Management 5: 155–66.
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.
Zhang, H., Li, S. (2008). The impact of capital structure on agency costs: Evidence from UK public companies, Doctoral dissertation, Queens university of technology.