The Impact of Managerial Entrenchment on Agency Costs: An Empirical Investigation Using UK Panel Data

By Chris Florackis, Aydin Ozkan. 2009

194 citations recorded by the source corpus.

This paper empirically investigates the relationship between managerial entrenchment and agency costs for a large sample of UK firms over the period 1999-2005. To measure managerial entrenchment, we use detailed information on ownership and board structures and managerial compensation. We develop a managerial entrenchment index, which captures the extent to which managers have the ability and incentives to expropriate wealth from shareholders. Our findings, which are based on a dynamic panel data analysis, show that there is a strong negative relationship between managerial entrenchment and our inverse proxy for agency costs, namely asset turnover ratio. There is also evidence that short-term debt and dividend payments work as effective corporate governance devices for UK firms. Finally, our findings reveal that agency costs are persistent over time. The results are robust to a number of alternative specifications, including varying measures of managerial entrenchment and agency costs.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/5d5626aab06fdb4e24af91f8900d464d77c399cc

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Citations in the corpus

Financial flexibility, corporate investment and performance: evidence from financial crises (2013, unknown): “We calculate the asset-turnover ratio (the ratio of total sales to total assets) of each firm and following Florackis and Ozkan (2009), we interpret it as an inverse proxy of expected agency costs.”
The Effect of Board Capital and CEO Power on Corporate Social Responsibility Disclosures (2016, background): “…CEO duality (Hermalin and Weisbach 1998; Jackling and Johl 2009), CEO ownership (Veprauskaite and Adams 2013), CEO tenure (Morck et al. 1988; Brookman and Thistle 2009) and CEO remuneration (Grinstein and Hribar 2004; Florackis and Ozkan 2009; Jiraporn and Chintrakarn 2013) as proxies of CEO power.”
Board structure and corporate risk taking in the UK financial sector (2017, methodology): “Second, due to the estimation method employed in this paper i.e., dynamic panel generalized method of moments estimator, it is required that financial data of the sample firms is available for at least five consecutive years (Florackis & Ozkan, 2009).”
Family control and investment–cash flow sensitivity: Empirical evidence from the Euro zone (2011, unknown): “10 control for endogeneity, as in several previous studies, is likely to yield inconsistent estimates (Blundell, Bond, Devereux and Schiantarelli, 1992; Florackis and Ozkan, 2009).”