Equity Concentration, Agency Costs and Performance of Non-financial Firms Listed on the Saudi Stock Exchange (Tadawul)

Abstract

This article examines the association between the equity concentration and agency costs as well as the impact of agency costs on performance of non-financial firms listed on the Saudi Stock Exchange (Tadawul). These relations are examined by using dynamic panel data and a two-step robust system estimation for the period 2010–2013. The study uses three proxy variables to measure agency costs. The results show that the equity concentration has no significant impact on agency costs, and the agency costs have no significant impact on firms’ performance. In addition, the study shows no evidence to support the agency theory in non-financial firms listed on the Saudi Stock Exchange (Tadawul). This study provides a better understanding of the association between equity concentration, agency costs and a firm’s performance.

Analysing the Impacts of Free Cash Flow, Agency Cost and Firm Performance in Public Listed Companies in Malaysia

“…There are many empirical investigations have been conducted and mostly in the developed countries (Antoniadis et al, 2008;Migunyi, Zanjirder and Gasemy, 2013;Wambua, 2013;Nobance, Ellili and Abraham, 2017;Hau, 2017;Kadiugloe et al,2017;Abdullah et al, 2019). According to Jensen's (1986) theory, having a big free cash flow might lead to a conflict within the company, such as between the interest manager and the shareholder, which will harm the company's performance.…”

Blockholding and agency cost: evidence from Nigeria

“…Whereas Blockholding and agency cost Ang et al (2000) and Florackis and Ozkan (2008) found a significant negative blockholdingagency cost relationship, Truong and Heaney (2013) found a positive relationship. Nobanee et al (2017) and Singh and Davidson (2003) reported a nonsignificant relationship. Engelen (2015) found that the relationship depends on the measure of agency cost and blockholder identity.…”

“…Urban (2015) obtained similar results with lagged independent variables, which according to him, provides evidence inconsistent with the idea of simultaneity in the blockholding-agency cost relationship or because blockholding remains relatively stable over time (Donelli et al, 2013;Urban, 2015). Some authors have addressed simultaneity concerns through instrumental variable-based techniques such as the two-stage least squares and generalized method of moments that also use lagged variables of predictors (see Nobanee et al, 2017). However, as some authors have pointed out, lagged values of predictors hardly solve reverse causality concerns (Edmans and Holderness, 2017;Reed, 2015).…”

“…Some authors argued that profitability and market value are not ideal proxy of agency cost because they incorporate the costs and benefits of using agents (Jelinek and Stuerke, 2009; Rashid, 2015; Truong and Heaney, 2013; Urban, 2015). Consequently, a relationship between blockholding and firm performance will not necessarily mean a relationship between blockholding and agency costs (Jelinek and Stuerke, 2009; Nobanee et al , 2017; Rashid, 2015; Urban, 2015). Except in few cases (e.g.…”

“…Some researchers (Ehikioya, 2009; Odewale and Kamardin, 2015; Ozili and Uadiale, 2017) have addressed the blockholding-performance relationship in Nigerian, but none has examined the blockholding-agency cost relationship. The study is also a response to the call to use direct measures for this variable, which is at the heart of the corporate governance-performance relationships instead of inferring agency cost indirectly from firm profitability and market value (Ang et al , 2000; Jelinek and Stuerke, 2009; Nobanee et al , 2017; Urban, 2015).…”