Corporate governance, working capital management, and firm performance: Some new insights from agency theory

Abstract

The role of corporate governance in performance of firms has been widely discussed in the extant literature. In contrast to examining direct relationships, this study investigates the mediating role of working capital management within these connections. Employing a large sample of nonfinancial firms listed on Pakistan Stock Exchange from 2009 to 2018, findings suggest that a corporate governance quality index and efficiency of working capital management are positively related to firm performance. Additionally, the results indicate that working capital management partially mediates the relationship between corporate governance and firm performance. These findings extend existing literature by offering new empirical and theoretical insights.

Analysis of Banking Performance Over Corporate Governance, Risk Management and Disclosure Practises

“…According to this school of thought, the administrations of a company need to be administered and controlled to ensure that the administration is carried out in full compliance with relevant rules and directions. This effort results in agency costs, which, in accordance with this principle, need to be levied in such a manner that the cost of minimizing losses caused by noncompliance increases to the level of the increase in authorization costs (Naz, Ali, Rehman & Ntim, 2022). Agency costs include the costs of supervision by shareholders, the costs incurred by management to produce transparent reports, including independent audit fees and internal controls, and costs incurred by decline in shareholder value as form of "bonding expenditures" granted to management in the form of options and benefits to align management interests with those of shareholders.…”

Board gender diversity and environmental disclosure: evidence from the banking sector

“…The agency theory arose as an attempt to solve the problem of conflict of interest, through its view of the company as a series of voluntary contracts between the various parties, which would limit the management’s behavior by prioritizing its own interests over the interests of other parties (Naz et al , 2021). The emergence of agency theory has led to an increase in interest and thinking about the necessity of having a set of laws and regulations that protect the interests of shareholders and limit the financial and administrative manipulation that may be carried out by members of the board of directors with the aim of maximizing their own interests (Chari et al , 2019).…”

Corporate diversification and debt financing: Do family shareholders protect their control rights?

“…The reason for this occurrence was because the firms involved in GD possessed a high firm valuation and low earnings volatility compared with the focused one, which enabled them to obtain long‐term debt easily. Meanwhile, firms that conducted both diversification strategies concurrently venture their businesses, hence recording the preference of short‐term debt (Monteforte & Staglianò, 2015; Naz et al, 2022). More importantly, these firms used short‐term debt to fulfil their immediate financial needs, address information asymmetry, reveal agency cost of debt arising from diversification activities (especially from GD) and mitigate underinvestment by maturing debt before the option to grow expires (Wang, 2020).…”