Abstract
The purpose of this paper is to investigate the effect of corporate governance quality and ownership structure on the relationship between the agency cost and firm performance. Both the fixed-effects model and a more robust dynamic panel generalized method of moment estimation are applied to Chinese A-listed firms for the years 2008 to 2016. The results show that the agency–performance relationship is positively moderated by (1) corporate governance quality, (2) ownership concentration, and (3) non-state ownership. State ownership has a negative effect on the agency–performance relationship. Various robust tests of an alternative measure of agency cost confirm our main conclusions. The analysis adds to the empirical literature on agency theory by providing useful insights into how corporate governance and ownership concentration can help mitigate agency–performance relationship. It also highlights the impact of ownership type on the relationship between agency cost and firm performance. Our study supports the literature that agency cost and firm performance are negatively related to the Chinese listed firms. The investors should keep in mind the proxies of agency cost while choosing a specific stock. Secondly; the abuse of managerial appropriation is higher in state-held firms as compared to non-state firms. Policymakers can use these results to devise the investor protection rules so that managerial appropriation can be minimized.
Highlights
Opportunistic managers, rather than maximizing the shareholder’s wealth, tend to misuse the organizational resources for their own benefit
This study aims to address the following research questions: (1) Does corporate governance quality mitigates the relationship between agency cost and firm performance? (2) How do ownership concentrations affect the relationship between agency cost and firm performance? (3) How do state and non-state companies moderate the relationship between agency cost and firm performance?
The purpose of this study was to investigate the effect of corporate governance quality and ownership concentration on the relationship between agency cost and firm performance
Summary
Opportunistic managers, rather than maximizing the shareholder’s wealth, tend to misuse the organizational resources for their own benefit. The purpose of this paper is to investigate the effect of corporate governance quality and ownership structure on the relationship between agency cost and firm performance. This study aims to address the following research questions: (1) Does corporate governance quality mitigates the relationship between agency cost and firm performance? Data is extracted of 2248 Chinese A-listed companies for the period 2008–2016 Using both fixed effects and dynamic panel generalized methods of moment estimation, the results show that agency cost is negatively related to firm performance. Emerging markets are prone to managerial discretion to a greater extent compared to in Anglo-American countries Managers in these economies tend to manage funds inefficiently, which directly affects firm performance. Many researchers have used the proxy of agency cost based on either the managerial discretion or ineffective use of shareholder’s funds
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