THE IMPACT OF CORPORATE GOVERNANCE MECHANISMS AND OWNERSHIP STRUCTURE ON THE AGENCY COST WITH SPECIFIC REFERENCE OF PAKISTANJournal: International Journal of Management (IJM) (Vol.12, No. 3)
Publication Date: 2021-03-31
Authors : Rashid Mahmood; Sidra Siddique;
Page : 976-988
Keywords : Agency cost; corporate governance mechanisms; ownership structure.;
The basic objective of this study is to investigate whether the corporate governance mechanisms and the ownership structure have any influence on the agency cost with specific reference of non-financial sector of Pakistan. The study is conducted on the non-financial sector of Pakistan. Three alternative proxies are used to measure the agency cost. Panel regression techniques including fixed effect model and random effect model are employed as the data is collected for a time span of 5 years for top 100 companies listed in Pakistan Stock Exchange based on their market capitalization. The results suggest that Three corporate governance variables including board size, independent and non-executive directors have significant and negative impact on the agency cost. As far as ownership structure is concerned only concentration has significant and positive impact on the agency cost when it is measured in terms of Tobin's Q. It is the first study in the context of Pakistan in which three different alternatives are used to measure the agency cost. The study covers the latest time span. The separate regression equations are used to avoid the problem of multicollinearity and to have more reliable results. The results suggest the quality of corporate governance matters with specific reference of public sector of Pakistan. In Pakistan family group-based firms are dominant in the financial non-financial sector but they lacked on governance merit. If those firms are made aware of the fact that by adopting governance standards, they not only improve their image but also their performance as a result both society & industry would be benefited. It will ensure the well-being of all stakeholders and better flow of funds.
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