The Impact of Chief Executive Officer Power on the Agency Costs: Evidence from Libya

Moutaz Kablan

doi:10.31579/2578-8868/157

Abstract

Given that the importance of stabilization of the agency theory as a base to organize the relationship between the shareholders "the origin" and the management "the agent" in the business environment nowadays, this study aimed to identify the impact of the chief executive officer "CEO" power on the agency costs in the Libyan private banks. To achieve this goal the study underlying the scarcity of related previous studies has stated its hypotheses. The study sample consists of (6) private banks for (5) years; then the study relied upon the multiple regression technique, which has been used to examine the fourth sub-hypotheses of the main one. As a result, the study became able to state that there is a positive significant relationship between the CEO ownership in the bank shares and the agency costs, while that there is no significant relationship between the duality of CEO role, the duration of CEO in his position, the independency of the board of directors and the agency costs in the Libyan private banks.

Highlights

Due to the CEO power sources as stated earlier, the study has derived the following four sub-hypotheses to examine the main one: H1: There is no a significant relationship between the duality of CEO role and the agency costs in the Libyan private banks
According to the statistical analysis of model (1-3), the study has concluded that, this means that %93.5 of the happened changes in agency costs in Libyan private banks can be explained by the CEO ownership in the bank's shares
The duality of CEO role does not have a significant effect on the agency costs in the Libyan private banks

Summary

Introduction

The agency theory idea presents the special relationship between the shareholders as the origin and the board of directors with all its relatives as the agent, who has the accreditation to invest their assets to maximize the firm value through time. the propagation of this model as a basis to the complete independence between them through the spreading of shareholders companies except that there are some obstacles which have appeared as a case of the asymmetry information called agency costs [1].Asymmetry information means that the agent has more deep information about the expected events and another sensitive insider information than the origin, so this flow will create a difficulty to monitor the agent performance fairly by the congress of owners [2]Underlying this contradictoriness between this couple, the role of the chief executive officer "CEO" may affect negatively on agency costs, this is because that the CEO is the top of the executive management of the firm, so the agency theory believes that will never pursue toward maximization the returning of shareholders unless is available on appropriate corporate governance [3].Speaking of the private banks in Libya, there are multi pure private banks have appeared in the Libyan economy consistent with the recent legislation which encourages this trend, but at the same time, these banks have suffered of multi crises during the last two decades, one of them is the agency costs problems.And digression by mention of CEO exclusively of the authority of all managers compliance at the firm for all decisions by him. [4,5] indicate that there are four main sources that cause the CEO power like following: Structural Power: May this is the most common type of CEO power which relies upon the organizational structure, so that grants the CEO a high level of the authority against the rest of executive positions of the firm.Ownership Power: There is a type of CEO power is generated by his ownership of the firm shares. Asymmetry information means that the agent has more deep information about the expected events and another sensitive insider information than the origin, so this flow will create a difficulty to monitor the agent performance fairly by the congress of owners [2]. Underlying this contradictoriness between this couple, the role of the chief executive officer "CEO" may affect negatively on agency costs, this is because that the CEO is the top of the executive management of the firm, so the agency theory believes that will never pursue toward maximization the returning of shareholders unless is available on appropriate corporate governance [3].

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