Corporate governance mechanisms and agency costs: cross-country analysis

Abstract

PurposeThe purpose of this paper is to investigate whether specific corporate governance mechanisms, such as board size, board composition, leverage and firm size, tend to mitigate agency cost occurrence in the USA, Russia and Norway.Design/methodology/approachThe authors analyze the sample of 243 US, 196 Russian and 175 Norwegian joint stock companies for the period 2004-2012. The regression analysis is applied to test the models.FindingsIt is revealed that larger boards increase agency costs (measured by asset utilization ratio and asset liquidity ratio) in all sample companies. The proportion of female members has a very slight positive effect in US companies, a negative influence on agency costs in the Norwegian sample and is not significant in the Russian market. The authors find that the big Russian and US companies in the samples of this paper have lower agency costs.Practical implicationsThe results of this paper show which agency-mitigation mechanisms work more effectively in companies operating in the analyzed countries characterized by specific corporate governance models.Originality/valueThe main contribution of this paper to the empirical literature is that it extends the stream of agency research by introducing new, emerging markets: represented by Scandinavian (depicted by the Norwegian sample) and Russian companies. Considering that each market – US, Norwegian and Russian – represents significant distinguishing features in their institutional framework, the paper provides an important research setting in which corporate governance mechanisms can be analyzed from the perspective of a country’s peculiar characteristics. Unlike other agency cost studies, this paper accounts for the gender diversity component in the companies and contributes to gender diversity issues.