agency costs, corporate governance mechanisms and ownership.pdfVIP

AUTHORS PERSONAL COPY The Quarterly Review of Economics and Finance 49 (2009) 139–158 Agency costs, corporate governance mechanisms and ownership structure in large UK publicly quoted companies: A panel data analysis Phillip J. McKnight a , Charlie Weirb,∗ a University of Wisconsin, USA b Aberdeen Business School, Garthdee Road, The Robert Gordon University, Aberdeen AB10 7QE, Scotland, United Kingdom Received 2 August 2006; received in revised form 2 September 2007; accepted 25 September 2007 Available online 1 February 2008 Abstract This paper examines the impact of governance and ownership variables on agency costs for a panel of large UK quoted companies. We use three measures of agency costs: the ratio of sales-to-total assets, the interaction of free cash flows and growth prospects and the number of acquisitions. We employ a range of techniques to analyse the data: fixed-effects, instrumental variables, and Tobit regressions. We find that the changes in board structures that have occurred in the post-Cadbury period have not, generally, affected agency costs. This suggests a range of mechanisms is consistent with firm value maximisation. We also find that having a nomination committee increases agency costs, which indicates that there are costs associated with certain governance mechanisms. Increasing board ownership also helps to reduce agency costs. We also find that debt reduces agency costs. Our results raise questions about the usefulness of the information sent to shareholders when firms adopt a recommended governance framework. © 2008 The Board of Trustees of the University of Illinois. Published by Elsevier B.V. All right