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Impact of board size and ownership concentration on agency costs: evidence for Croatian companies

Author

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  • Marina Klaèmer Èalopa

    (University of Zagreb, Faculty of Organization and Informatics, Pavlinska 2, 42 000 Varaždin, Croatia)

  • Ivana Ðunðek Kokotec

    (University of Zagreb, Faculty of Organization and Informatics, Pavlinska 2, 42 000 Varaždin, Croatia)

  • Karolina Kokot

    (University of Zagreb, Faculty of Organization and Informatics, Pavlinska 2, 42 000 Varaždin, Croatia)

Abstract

The main objective of this research paper is to examine the impact of board size and ownership concentration, representing corporate governance mechanisms, on agency costs in large Croatian companies. Furthermore, debt financing and firm growth are examined because those variables also have impact on agency costs. Agency theory defines a framework for the potential issue of the separation of ownership and management as well as for the conflict between stakeholders (principals) and managers (agents). The most significant principal-agent problems are agency costs, but they do not have a directly quantifiable value; hence, in this research paper, the asset turnover ratio is used as the approximation. Therefore, this research will empirically test the significance of the impact of board size, ownership concentration, debt financing and firm growth on agency cost in the observed period from 2014 to 2018 using panel data analysis. This research was conducted with large Croatian companies using data and information from official annual accounts primarily to ensure objectivity, standardization and comparability. Specifically, the analysis was conducted on 219 companies operating in two main categories of economic activity: Manufacturing (C) and Wholesale and retail trade (G). The results indicate that board size has a significant but negative impact on agency costs. The results also indicate that debt and growth have a significant and negative impact on agency costs. Ownership concentration was not found to have significant impact.

Suggested Citation

  • Marina Klaèmer Èalopa & Ivana Ðunðek Kokotec & Karolina Kokot, 2020. "Impact of board size and ownership concentration on agency costs: evidence for Croatian companies," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(2), pages 521-535.
    • Handle: RePEc:rfe:zbefri:v:38:y:2020:i:2:p:521-535
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    References listed on IDEAS

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    More about this item

    Keywords

    agency costs; corporate governance; board size; ownership concentration; panel data analysis;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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