The impact of managerial entrenchment on agency costs: An empirical investigation using UK panel data

Florackis, Chrisostomos; Ozkan, Aydin

Abstract

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. © 2007 Blackwell Publishing Ltd.

Citation

Florackis, C., & Ozkan, A. (2009). The impact of managerial entrenchment on agency costs: An empirical investigation using UK panel data. European Financial Management, 15(3), 497-528. https://doi.org/10.1111/j.1468-036x.2007.00418.x

• Journal Article Type: Article
• Acceptance Date: Jan 1, 2007
• Online Publication Date: Nov 13, 2007
• Publication Date: 2009-06
• Deposit Date: Nov 13, 2014
• Journal: European Financial Management
• Print ISSN: 1354-7798
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 15
• Issue: 3
• Pages: 497-528
• DOI: https://doi.org/10.1111/j.1468-036x.2007.00418.x
• Keywords: Accounting; General Economics, Econometrics and Finance
• Public URL: https://hull-repository.worktribe.com/output/461046
• Publisher URL: https://onlinelibrary.wiley.com/doi/epdf/10.1111/j.1468-036X.2007.00418.x
• Contract Date: Nov 13, 2014