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

Aydin Ozkan, Chrisostomos Florackis

Research output: Contribution to journalArticle

67 Citations (Scopus)


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.

Original languageEnglish
Pages (from-to)497-528
Number of pages32
JournalEuropean Financial Management
Issue number3
Publication statusPublished - 1 Jun 2009
Externally publishedYes


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