1. Home
  2. Vol 10, No 2 (2024)
  3. Linda

Can governance mechanisms minimize agency costs?

Linda Linda (1), Mulia Saputra (2), Raida Fuadi (3), Wida Fadhlia (4),
(1) Universitas Syiah Kuala Banda Aceh  Indonesia
(2) Universitas Syiah Kuala Banda Aceh  Indonesia
(3) Universitas Syiah Kuala Banda Aceh  Indonesia
(4) Universitas Syiah Kuala Banda Aceh  Indonesia

Corresponding Author


DOI : https://doi.org/10.29210/020242944

Full Text:    Language : en

Abstract


The purpose of this research is (1) to know whether agency costs incurred in companies listed on IDX 30 are of high or low value? (2) The aim is to investigate how agency costs are affected by different corporate governance mechanisms, specifically the size of the board of directors, the size of the board of commissioners, and the size of the audit committee. This research employed quantitative methods through a comprehensive review of existing literature and the subsequent formulation of hypotheses. In this study, agency costs are proxied by expense comparison and the capital utilization comparison. The results show most of companies listed on IDX 30 have low agency cost. The expense comparison indicates that the size of the board of directors has a notable impact on reducing agency costs. On the other hand, the capital utilization comparison shows that the size of the board of commissioners has a significant influence in reducing agency costs. However, the size of the audit committee does not seem to have a substantial effect on agency costs. Low agency costs that occur indicate low agency conflicts that occur - so this firm can list on IDX 30.

Keywords


Agency costs, capital utilization comparison, expense comparison, and capital utilization comparison

References


Abdillah, M. R., Mardijuwono, A. W., & Habiburrochman, H. (2019). The effect of company characteristics and auditor characteristics to audit report lag. Asian Journal of Accounting Research, 4(1), 129–144.

Allegrini, M., & Greco, G. (2013). Corporate boards, audit committees and voluntary disclosure: Evidence from Italian listed companies. Journal of Management & Governance, 17, 187–216.

Almunawwaroh, M., & Setiawan, D. (2023). Does audit committee characteristics a driver in risk disclosure? Cogent Business & Management, 10(1), 2167551.

Baatwah, S. R., Aljaaidi, K. S., & Almoataz, E. S. (2020). Comprehensive dataset for corporate governance in Oman: Data for a three-level quality assessment of corporate governance. Data in Brief, 32, 106127.

Ben Rejeb, W., Berraies, S., & Talbi, D. (2020). The contribution of board of directors’ roles to ambidextrous innovation: do board’s gender diversity and independence matter? European Journal of Innovation Management, 23(1), 40–66.

Budiharjo, R. (2022). The Effect of Financial Performance on Stock Prices of Food and Beverage Sector Companies. LITERATUS, 4(2), 399–409.

Cai, C. X., Hillier, D., Tian, G., & Wu, Q. (2015). Do audit committees reduce the agency costs of ownership structure? Pacific-Basin Finance Journal, 35, 225–240.

Chinelo, E. O., & Iyiegbuniwe, W. (2018). Ownership structure, corporate governance and agency cost of manufacturing companies in Nigeria. Research Journal of Finance and Accounting, 9(16), 16–26.

D’Amato, A. (2020). Capital structure, debt maturity, and financial crisis: empirical evidence from SMEs. Small Business Economics, 55(4), 919–941.

Economics, E. O. F., Economics, P. O. F., Of, E., Issues, S., Economics, M., Economics, I., Economics, A., & Economics, U. (2013). Single-equation regression models. In Introductory Econometrics: A Practical Approach.

Fama, E. F. (2014). Two pillars of asset pricing. American Economic Review, 104(6), 1467–1485.

Florackis, C. (2008). Agency costs and corporate governance mechanisms: Evidence for UK firms. International Journal of Managerial Finance, 4(1), 37–59.

Guluma, T. F. (2021). The impact of corporate governance measures on firm performance: the influences of managerial overconfidence. Future Business Journal, 7(1), 1–18.

Gupta, P., & Sharma, A. M. (2014). A study of the impact of corporate governance practices on firm performance in Indian and South Korean companies. Procedia-Social and Behavioral Sciences, 133, 4–11.

Hapsari, D. W., Qashash, V., & Manurung, D. T. H. (2019). Implikasi Corporate Governance dalam Pelaksanaan Integrated Reporting pada BUMN Nonkeuangan. Jurnal Akuntansi Multiparadigma, 10(3).

Hasan, A., Riaz, Z., & Nakpodia, F. (2023). Explicating the contextuality of corporate governance through ownership structure and family management: evidence from an emerging economy. Corporate Governance: The International Journal of Business in Society.

Hasan, M. B., Wahid, A. N. M., Amin, M. R., & Hossain, M. D. (2023). Dynamics between ownership structure and dividend policy: evidence from Bangladesh. International Journal of Emerging Markets, 18(3), 588–606.

Hasan, M. M., Hossain, A., & Hossain, T. (2023). CEO inside debt holdings and credit ratings. Journal of Contemporary Accounting & Economics, 19(1), 100337.

Huu Nguyen, A., Thuy Doan, D., & Ha Nguyen, L. (2020). Corporate governance and agency cost: Empirical evidence from Vietnam. Journal of Risk and Financial Management, 13(5), 103.

Jaidi, J., Wenhao, M., & Mohidin, R. (2022). Board independence, corporate social responsibility and firm performance: evidence from China. International Journal of Banking and Finance (IJBF), 17(1), 109–130.

Juniarti, S., Parmariza, Y., & Maharani, N. (2022). Effect Of Work Skills, Work Environment and Leadership Style on Employee Performance (Study at LG Electronics Indonesia PT-Head Office in South Jakarta). Dinasti International Journal of Digital Business Management, 3(5), 745–754.

Kao, M.-F., Hodgkinson, L., & Jaafar, A. (2019). Ownership structure, board of directors and firm performance: evidence from Taiwan. Corporate Governance: The International Journal of Business in Society, 19(1), 189–216.

Khan, A., Mihret, D. G., & Muttakin, M. B. (2016). Corporate political connections, agency costs and audit quality. International Journal of Accounting & Information Management, 24(4), 357–374.

Lahjie, A. A. (2017). The Impact of Corporate Governance, Corporate Social Responsibility and Information Quality on the Value of Indonesian Listed Firms. Victoria University.

Liang, D., Tsai, C.-F., Lu, H.-Y. R., & Chang, L.-S. (2020). Combining corporate governance indicators with stacking ensembles for financial distress prediction. Journal of Business Research, 120, 137–146.

Linda, L., Afrianandra, C., Fitria, A., & Yulia, A. (2020). Factors affecting performance in companies with high agency costs. Journal of Accounting Research, Organization and Economics, 3(1), 52–61.

Luo, J., Li, X., & Chen, H. (2018). Annual report readability and corporate agency costs. China Journal of Accounting Research, 11(3), 187–212.

Marashdeh, Z., Saidat, Z., Alkhodary, D., & Al-Haddad, L. (2021). Agency theory and the Jordanian corporate environment: why a single theory is not enough. Academy of Accounting and Financial Studies Journal, 25(5), 1–15.

Misangyi, V. F., & Acharya, A. G. (2014). Substitutes or complements? A configurational examination of corporate governance mechanisms. Academy of Management Journal, 57(6), 1681–1705.

Naciti, V. (2019). Corporate governance and board of directors: The effect of a board composition on firm sustainability performance. Journal of Cleaner Production, 237, 117727.

Nana Yeboah, E., Yang, Z., Arthur, B., & Kyeremeh, G. (2023). Effect of audit firm industry specialization on cost of debt financing: Evidence from Ghana. Cogent Business & Management, 10(1), 2175439.

Nguyen, T. H. H., Elmagrhi, M. H., Ntim, C. G., & Wu, Y. (2021). Environmental performance, sustainability, governance and financial performance: Evidence from heavily polluting industries in China. Business Strategy and the Environment, 30(5), 2313–2331.

OECD. (2021). OECD Corporate Governance Factbook 2021 (p. 252). p. 252. OECD.

Panda, B., & Leepsa, N. M. (2017). Agency theory: Review of theory and evidence on problems and perspectives. Indian Journal of Corporate Governance, 10(1), 74–95.

Pantzalis, C., & Park, J. C. (2014). Agency costs and equity mispricing. Asia-Pacific Journal of Financial Studies, 43(1), 89–123. https://doi.org/10.1111/ajfs.12041

Parveen, S., Saghir, V., & Beg, S. (2023). AN EMPIRICAL STUDY OF CUSTOMER SATISFACTION TOWARDS E-BANKING SERVICES IN DELHI. Indian Journal of Finance and Banking, 13(1), 54–62.

Perera, W., & Buvanendra, S. (2022). Impact of Corporate Ownership Structure on Agency Costs: Evidence from Sri Lankan Listed Firms. Wayamba Journal of Management, 13(2).

Prasastine, S. A., & Yulianto, A. (2022). Good Corporate Governance and Leverage Control Variables at Agency Cost: Non Financial Companies in Indonesia. Management Analysis Journal, 11(3), 227–239.

Puni, A., & Anlesinya, A. (2020). Corporate governance mechanisms and firm performance in a developing country. International Journal of Law and Management, 62(2), 147–169.

Roychowdhury, S., Shroff, N., & Verdi, R. S. (2019). The effects of financial reporting and disclosure on corporate investment: A review. Journal of Accounting and Economics, 68(2–3), 101246.

Sadiq, M., Alajlani, S., Hussain, M. S., Ahmad, R., Bashir, F., & Chupradit, S. (2021). Impact of credit, liquidity, and systematic risk on financial structure: comparative investigation from sustainable production. Environmental Science and Pollution Research, 1–13.

Simanjuntak, D. D. Du, & Sinaga, J. T. G. (2021). The Effect of Board of Commissioners, Audit Committee, Company Size, and Capital Structure on Agency Costs: Indonesia Perspective. Jurnal Akuntansi, 11(2), 149–162.

Vijayakumaran, R. (2019). Agency costs, ownership, and internal governance mechanisms: evidence from Chinese listed companies.

Vo, D. H., & Nguyen, Vty. (2014). Managerial ownership, leverage and dividend policies: Empirical evidence from Vietnam’s listed firms. International Journal of Economics and Finance, 6(5), 274–284.

Zaidi, S. K. R., Henderson, C. D., & Gupta, G. (2017). The Moderating Effect of Culture on E-filing Taxes: Evidence from India. Journal of Accounting in Emerging Economies, 7(1), 134–152.


Article Metrics

 Abstract Views : 339 times
 PDF Downloaded : 0 times

Refbacks

  • There are currently no refbacks.