Reducing Agency Costs by Selecting an Appropriate System of Corporate Governance

Abstract

This paper analyzes the Principal-Agent Problem in Corporate Governance. Focus is on the question: One-Tier or Two-Tier system of Corporate Governance -which one is more effective in reducing Agency Costs? The authors analyze provisions regulating corporate governance in different legal systems, and therefore, they conclude: It should be prescribed by Codes of Corporate Governance that system of corporete governance applied in particular company shall depend on its shareholding structure. Consequently, significant indication for potential investors to not invest in the company, would exist if the best practice of corperate governance (including the system of Corporate Governance recommended by CCG) is not applied. ARTICLE INFO

The influence of corporate governance on bank risk during a financial crisis

“…This research uses agency theory perspectives (see, for example, Maurović & Hasić, 2013). Stewardship theory (Davis, Schoorman, & Donaldson, 1997) and the resource-based view (Miller, Washburn, & Glick, 2013) may question or complement the agency-theory-based assumptions that support most studies of corporate governance.…”

“…Previous studies in this field (e.g., Pathan, 2009;Victoravich, Grove, Xu, & Bulepp, 2011) have focused on US financial institutions, where shareholder dispersion is the paradigm and banks play a less central role in the financial system than in, for example, continental European countries. As Maurović and Hasić (2013) note, agency problems in Anglo-Saxon and continental legal systems also differ. The scarcity of studies of the effect on bank risk also justifies this study's relevance.…”

Corporate Governance, Firm Performance, and Economic Growth – Theoretical Analysis

“…Agency theory, introduced by Jensen and Meckling (1976), attempts to reduce agency problem (in economic terminology) or to decrease the conflict of interest between different groups involved in corporate governance (in legal terminology). Thus, it advises companies to implement the system of corporate governance that induces directors to act in their principals' best interest (Maurović, Hasić 2014).…”

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

“…The difficulty of monitoring managerial activities creates potential for suboptimal allocation of a firm's resources (Jensen & Meckling, 1976; Nazir et al, 2009). According to Maurović and Hasić (2013), corporate governance (CG) aligns management activities with the best interests of shareholders by establishing mechanisms of control, with substantial research supporting CG as a monitoring system to reduce agency costs (Florackis, 2008; Garanina & Kaikova, 2016; Nguyen et al, 2020; Singh & Davidson, 2003). Previous research has examined the effect of corporate governance on information asymmetry (Elbadry et al, 2015; Kanagaretnam et al, 2007; Mande et al, 2012; Tahir et al, 2019) or the effect of corporate governance on agency cost (Chi & Lee, 2010; Khan et al, 2012, 2013; Zhang & Cao, 2016).…”