Abstract
An assumption in agency costs theory is that agency costs can exert a negative impact on firm performance. In this study, we examine the impact of agency costs on firm performance of Vietnamese listed companies. Our sample includes 736 companies in Vietnam during the period om 2010 to 2015. We find that agency costs exert a negative impact on firm performance. Our results are robust to alternative econometric models, including an instrumental variables technique and a system generalized method of moment model. In addition, we show that a debt instrument can be a useful tool to reduce the negative impact of agency costs on firm performance.
Highlights
The issues of agency costs that are mentioned by Jensen and Meckling (1976) have attracted major attention of many scholars around the world (e.g., Ang, Cole, & Lin, 2000; Singh & Davidson, 2003; McKnight & Weir, 2009; Belghitar & Clark, 2015; and Rossi, Barth & Cebula, 2018)
Based on the underlying assumption that agency costs exert a negative impact on firm performance ( Jensen & Meckling, 1976), we develop the following hypothesis: Hypothesis 1: The increase in agency costs can reduce firm performance
When investigating the agency costs in corporate governance, most of the studies assume that agency costs have a negative impact on firm performance ( Jensen & Meckling, 1976; Singh & Davidson, 2003; Hermalin& Weisbach, 2003; Fleming et al, 2005; McKnight & Weir, 2009; Margaritis & Psillaki, 2010; Arosa, Iturralde, & Maseda, 2010; Black & Kim, 2012; Liu et al, 2015; Chen, 2015)
Summary
The issues of agency costs that are mentioned by Jensen and Meckling (1976) have attracted major attention of many scholars around the world (e.g., Ang, Cole, & Lin, 2000; Singh & Davidson, 2003; McKnight & Weir, 2009; Belghitar & Clark, 2015; and Rossi, Barth & Cebula, 2018) Most of these studies have a common assumption that the agency costs have a negative impact on firm performance. Even though it is a common practice for Vietnamese listed companies to have their CEOs as their general director (which means the representative of shareholders takes on the role of the top manager), it does not mean these companies can completely avoid agency costs This is because these principal shareholders/top managers possess private information that is unavailable to other stockholders and have the potential to use it for their own benefit at the expense of other stockholders, which can elevate the agency problem
Sign-in/Register to view highlights & summary 
Published Version (
Free)
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call