Agency Costs, Corporate Governance and the Nature of Controlling Shareholders: Evidence From French Listed Firms

Dabboussi Moez

doi:10.5296/ijafr.v8i3.13621

Abstract

This paper examines the impact of internal corporate governance on agency costs for French firms from 2000 to 2015. Our results reveal that shareholders themselves are not a homogenous group since they have no single common investment horizon. We found that managerial ownership is more effective in mitigating operational expenses. However, they take advantage of excessive spending on indirect benefits. We show that board of directors does not serve as a significant deterrent to excessive discretionary expenses. Finally, we found that dividend policy is a useful tool to reduce agency conflicts by reducing cash that is available for discretionary uses.

Highlights

How to reduce agency problems that can arise between shareholders and managers? This is one of the big questions when corporate governance is addressed
Various corporate governance mechanisms are proposed to solve problems resulting from conflicts of interest between management's personal interests and the goal of maximizing shareholder wealth
We attempt to validate if the corporate governance principles and recommendations was effective for resolving agency problems

Summary

Introduction

How to reduce agency problems that can arise between shareholders and managers? This is one of the big questions when corporate governance is addressed. How to reduce agency problems that can arise between shareholders and managers? During the last decades, the issue has attracted the attention of many researchers and regulatory authorities. 2018, Vol 8, No 3 interested in the study of the agency problem, giving rise to several propositions about the firm's management structure. Jensen and Meckeling (1976), founder of the agency theory, examined the conflicts of interest that arise between managers and shareholders when ownership and control are separated. To reduce this conflict, corporate governance theory provided answers as to the maximization of firm value and the elimination of any source of organizational inefficiency. Swanson and Tayan (2011) and Damodaran (2015) defined corporate governance as a set of control mechanisms that the organization adopts to prevent or to dissuade managerial self-interest from engaging in activities disfavoring stakeholders‟ well-being

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