Abstract
The purpose of the current work is to investigate the influence of agency cost on equity mispricing for the firms listed on Pakistan Stock Exchange during the period from 2008 to 2016. Agency cost is estimated by asset utilization ratio, mispricing is computed by book- to -market ratio and some firms characteristic such as size, profitability and leverage are taken as control variables. Balanced panel method is used to estimate the results. The sample is divided into two parts on the basis of stock mispricing; undervalued and overvalued firms. The influence of agency costs is then separately examined on both sub-samples. Moreover, the effect of managerial ownership on the relationship between agency cost and mispricing is investigated. Results show that agency cost is positively linked with equity mispricing. Moreover, findings demonstrate that for undervalued firms, effect of agency costs is stronger but for overvalued firm, it is weaker and negative. Results are consistent with previous studies.
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