Factors Affecting Performance in Companies with High Agency Costs

Abstract

Objective – This research focuses on manufacturing companies with high growth rates, as measured by the Tobins'Q proxy. The high growth of a company is closely related to higher agency costs, compared to companies with low growth rates. We investigate the influence of the board of commissioners, directors, audit committees, bid-ask spreads on the high agency costs of manufacturing companies listed on the Indonesia Stock Exchange. The indicator of agency costs in this study are the EXPR and AUR ratios. Design/methodology – The population of this study are manufacturing companies listed on the Indonesia Stock Exchange. Purposive random sampling resulted 111 samples of companies with high growth rates. This study uses multiple linear regression analysis. The first analysis with EXPR independent variable and the second analysis with AUR independent variable, both variables could be used as agency cost indicators. Results – The result reveals that the board of commissioners and directors have a positive effect on the agency costs, which are measured by the EXPR and AUR ratios while the audit committee has a negative significant effect on the high agency costs as measured by the EXPR ratio. Moreover, bid-ask spread as a control variable has a significant positive effect on AUR. The presence of monitoring quality, pressure, reputation of the board of commissioners and audit committee will reduce the types of management policy which may increase agency conflict.

Agency Costs and Company Performance Idx 30

“…Research results Linda et al, (2020)According to the results of Linda et al's research, the summary of descriptive statistics of manufacturing companies from 111 samples of average agency costs as measured by the expense ratio indicator (EXPR) of 111 research samples there were 82 companies with high levels of agency costs. When using the asset utilization ratio (AUR) 78 companies indicate high agency costs.…”

Ineffective implementation of corporate governance? A call for greater transparency to reduce agency cost

“…Based on the seminal work of Williamson (1996), transaction cost theory elucidates that which business activities should be governed by external monitoring systems and which should be internalized, depending on their transaction costs (Rindfleisch, 2020). In developed economies, there is ample research suggesting that board and audit committee effectiveness could mitigate agency costs in firms (Chu et al, 2019; Florackis, 2008; Linda, 2020; Maurović & Hasić, 2013; Serly & Zulfia, 2019; Singh & Davidson, 2003; Truong & Heaney, 2013). Moreover, the literature has shown mixed results regarding the effect of ownership concentration on agency costs.…”