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Corporate governance mechanisms and agency costs: cross-country analysis

Research paper by Tatiana Garanina, Elina Kaikova

Indexed on: 06 May '16Published on: 24 Feb '16Published in: Corporate Governance International Journal of Business in Society



Abstract

Corporate Governance: The international journal of business in society, Volume 16, Issue 2, April 2016. Purpose The aim of the paper is to investigate whether specific corporate governance mechanisms, such as board size, board composition, leverage and firm size, tend to mitigate agency cost occurrence in the USA, Russia and Norway. Design/methodology/approach We analyze the sample of 243 US, 196 Russian and 175 Norwegian joint stock companies for the period from 2004 to 2012. We apply the regression analysis to test the models. Findings We reveal that larger boards increase agency costs (measured by asset utilization ratio and the asset liquidity ratio) in all sample companies. The proportion of female members has a very slight positive effect in US companies, a negative influence on agency costs in the Norwegian sample and is not significant in the Russian market. We find that the big Russian and US companies in our samples have lower agency costs. Practical implications The results of the paper show which agency-mitigation mechanisms work more effectively in companies operating in the analyzed countries characterized by specific corporate governance models. Originality/value The main contribution of this paper to the empirical literature is that it extends the stream of agency research by introducing new, emerging markets: represented by Scandinavian (depicted by the Norwegian sample) and Russian companies. Considering that each market – US, Norwegian and Russian – represents significant distinguishing features in their institutional framework, the paper provides an important research setting in which corporate governance mechanisms can be analyzed from the perspective of a country’s peculiar characteristics. Unlike other agency cost studies, we accounted for the gender diversity component in the companies and contribute to gender-diversity issues.