Agency costs and corporate governance mechanisms: evidence for UK firms
Purpose – This paper aims to extend the empirical literature on the determinants of agency costs by using a large sample of UK listed firms. Design/methodology/approach – The paper investigates the impact of several corporate governance mechanisms on two alternative proxies for agency costs, namely the ratio of total sales to total assets (asset turnover) and the ratio of selling, general and administrative expenses to total sales (SG&A). The analysis depends on a cross-sectional regression approach. Findings – The results reveal that the capital structure characteristics of firms, namely bank debt and debt maturity, constitute important corporate governance devices for UK companies. Also, managerial ownership, managerial compensation and ownership concentration are strongly associated with agency costs. Finally, the results suggest that the impact exerted by specific internal governance mechanisms on agency costs varies with firms' growth opportunities. Originality/value – The analysis adds to the empirical literature on agency costs by providing useful insights into how debt maturity and managerial compensation can help mitigate agency-related problems. It also highlights important interactions between internal governance mechanisms and firm growth opportunities.
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