Revisiting Agency Theory: Evidence of Board Independence and Agency Cost from Bangladesh

Afzalur Rashid

Journal of Business Ethics, 2015, vol. 130, issue 1, 198 pages

Abstract: This study examines the influence of board independence on firm agency cost among listed firms in Bangladesh, which feature concentrated ownership and high insider representation on corporate boards. This study uses three measures of agency cost: the ‘expense ratio’, the ‘Q-free cash flow interaction’ and the ‘asset utilization ratio’. The finding of the study is that board independence can reduce the firm agency cost only under ‘asset utilization ratio’ measure of agency cost. These findings are robust to several robustness tests. Furthermore, the non-linearity tests suggest that the benefit of outside independent directors is generally plausible as a factor controlling agency costs in the case of a medium level of board independence. Overall, these findings do not reject the validity of agency theory, supporting the Anglo-American orthodoxy promoting outside independent directors as good monitors. Copyright Springer Science+Business Media Dordrecht 2015

Keywords: Agency theory; Board independence; Resource dependence theory; Stewardship theory (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (31)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jbuset:v:130:y:2015:i:1:p:181-198

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DOI: 10.1007/s10551-014-2211-y

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