The impact of managerial entrenchment on agency costs: An empirical investigation using UK panel data

Aydin Ozkan, Chrisostomos Florackis

Research output: Contribution to journalArticle

61 Citations (Scopus)

Abstract

This paper empirically investigates the relationship between managerial entrenchment and agency costs for a large sample of UK firms over the period 1999-2005. To measure managerial entrenchment, we use detailed information on ownership and board structures and managerial compensation. We develop a managerial entrenchment index, which captures the extent to which managers have the ability and incentives to expropriate wealth from shareholders. Our findings, which are based on a dynamic panel data analysis, show that there is a strong negative relationship between managerial entrenchment and our inverse proxy for agency costs, namely asset turnover ratio. There is also evidence that short-term debt and dividend payments work as effective corporate governance devices for UK firms. Finally, our findings reveal that agency costs are persistent over time. The results are robust to a number of alternative specifications, including varying measures of managerial entrenchment and agency costs.

LanguageEnglish
Pages497-528
Number of pages32
JournalEuropean Financial Management
Volume15
Issue number3
DOIs
Publication statusPublished - 1 Jun 2009
Externally publishedYes

Fingerprint

Managerial entrenchment
Empirical investigation
Panel data
Agency costs
Dividends
Information use
Managerial compensation
Dynamic panel data
Board structure
Assets
Corporate governance
Shareholders
Panel data analysis
Ownership structure
Wealth
Incentives
Turnover
Payment
Managers
Short-term debt

Cite this

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The impact of managerial entrenchment on agency costs : An empirical investigation using UK panel data. / Ozkan, Aydin; Florackis, Chrisostomos.

In: European Financial Management, Vol. 15, No. 3, 01.06.2009, p. 497-528.

Research output: Contribution to journalArticle

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