Mediating Effect of Agency Cost on the Relationship between Ownership Structure and Firm Value

Henry Kimathi Mukaria, Mirie Mwangi, Duncan Elly Ochieng and Kennedy Okiro

Journal of Finance and Investment Analysis, 2020, vol. 9, issue 3, 3

Abstract: In the absence of agency conflicts, firm management can pursue investments that maximize shareholders wealth. This paper sought to establish the mediating effect of agency costs on relationship between ownership structure and value of companies listed at the Nairobi Securities Exchange. The study population consisted of 64 listed firms as at 31st December 2017. Generalized least squares estimator was fitted for the analysis. The findings reveal that managerial ownership transmit a negative influence onto value of the firm through managerial discretionary expenses utilization. On the contrast, foreign ownership transmit a positive influence on the value of listed firms through efficacy in the utilization of managerial discretionary expenses. Institutional ownership enhance value directly but not indirectly via application of managerial expenses. The findings extend predictions beyond the direct link between ownership and firm value. The study support contemporary practices in corporate governance of designing costs control mechanism and setting target cost efficiency ratio to maximize shareholders value.

Keywords: Managerial Ownership; Foreign Ownership; Institutional Ownership; Firm Value; Agency Cost; Mediating Effect. (search for similar items in EconPapers)
Date: 2020
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