Revisiting agency theory: evidence of board independence and agency cost from Bangladesh

Article

Rashid, Afzalur. 2015. "Revisiting agency theory: evidence of board independence and agency cost from Bangladesh." Journal of Business Ethics. 130 (1), pp. 181-198. https://doi.org/10.1007/s10551-014-2211-y
Article Title

Revisiting agency theory: evidence of board independence and agency cost from Bangladesh

ERA Journal ID8465
Article CategoryArticle
Authors
AuthorRashid, Afzalur
Journal TitleJournal of Business Ethics
Journal Citation130 (1), pp. 181-198
Number of Pages18
Year2015
PublisherSpringer
Place of PublicationNetherlands
ISSN0167-4544
1573-0697
Digital Object Identifier (DOI)https://doi.org/10.1007/s10551-014-2211-y
Web Address (URL)https://link.springer.com/article/10.1007/s10551-014-2211-y
Abstract

This study examines the influence of board independence on firm agency cost among listed firms in Bangladesh, which feature concentrated ownership and high insider representation on corporate boards. This study uses three measures of agency cost: the 'expense ratio', the 'Q-free cash flow interaction' and the 'asset utilization ratio'. The finding of the study is that board independence can reduce the firm agency cost only under 'asset utilization ratio' measure of agency cost. These findings are robust to several robustness tests. Furthermore, the non-linearity tests suggest that the benefit of outside independent directors is generally plausible as a factor controlling agency costs in the case of a medium level of board independence. Overall, these findings do not reject the validity of agency theory, supporting the Anglo-American orthodoxy promoting outside independent directors as good monitors.

Keywordsagency theory; board independence; resource dependence theory; stewardship theory
Contains Sensitive ContentDoes not contain sensitive content
ANZSRC Field of Research 2020500102. Business ethics
350799. Strategy, management and organisational behaviour not elsewhere classified
380109. Industry economics and industrial organisation
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Byline AffiliationsSchool of Commerce
Institution of OriginUniversity of Southern Queensland
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