Corporate governance risk and the agency problem

Corporate governance risk and the agency problem PurposeThis study aims to investigate the relationship between corporate governance risk and agency costs across different countries.Design/methodology/approachCorporate governance risk indicators were obtained from the Institutional Shareholder Services Europe (S.A.) for 4,135 firms across 27 countries. Agency costs and other control variables were derived from companies’ annual financial reports using the DataStream database. Ordinary least squares multiple regression analysis model was used to test the study hypothesis.FindingsAgency costs have a significant negative impact on corporate governance risk across countries. The extent of corporate governance mechanisms used, however, varies across geographic regions and industry types. The relationship between corporate governance risk and agency costs is more obvious in the non-financial than financial sector. These results were robust after several statistical checks.Practical implicationsThe findings will help stakeholders, including corporate management, regulators and investors to improve corporate governance mechanisms and capital allocation decisions across countries.Originality/valueEvidence is provided on the role of agency costs in corporate governance risk across geographic regions for financial and non-financial companies. The paper also overcomes common problems in corporate governance research such as construct validity, limited data and endogeneity. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Corporate Governance Emerald Publishing

Corporate governance risk and the agency problem

Corporate Governance, Volume 18 (2): 16 – Apr 3, 2018

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1472-0701
DOI
10.1108/CG-08-2017-0195
Publisher site
See Article on Publisher Site

Abstract

PurposeThis study aims to investigate the relationship between corporate governance risk and agency costs across different countries.Design/methodology/approachCorporate governance risk indicators were obtained from the Institutional Shareholder Services Europe (S.A.) for 4,135 firms across 27 countries. Agency costs and other control variables were derived from companies’ annual financial reports using the DataStream database. Ordinary least squares multiple regression analysis model was used to test the study hypothesis.FindingsAgency costs have a significant negative impact on corporate governance risk across countries. The extent of corporate governance mechanisms used, however, varies across geographic regions and industry types. The relationship between corporate governance risk and agency costs is more obvious in the non-financial than financial sector. These results were robust after several statistical checks.Practical implicationsThe findings will help stakeholders, including corporate management, regulators and investors to improve corporate governance mechanisms and capital allocation decisions across countries.Originality/valueEvidence is provided on the role of agency costs in corporate governance risk across geographic regions for financial and non-financial companies. The paper also overcomes common problems in corporate governance research such as construct validity, limited data and endogeneity.

Journal

Corporate GovernanceEmerald Publishing

Published: Apr 3, 2018

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