What Reduces the Impact of Managerial Entrenchment on Agency Costs? Evidence for UK Firms
AbstractThis paper examines how managerial entrenchment, defined as the extent to which managers are able to use their discretion and expropriate wealth from shareholders, influences agency costs. Using a cross-sectional regression framework and a large sample of UK listed firms, we show that there is a negative relationship between our inverse proxy for agency costs, namely asset turnover ratio, and managerial entrenchment. However, it seems that the relation between managerial entrenchment and agency costs depends on managerial incentives. Specifically, there is strong evidence that managerial incentive variables, such as executive ownership and market-to-book ratio, moderate the negative relationship between managerial entrenchment and asset turnover.
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Bibliographic InfoPaper provided by Department of Economics, University of York in its series Discussion Papers with number 06/03.
Date of creation: Jan 2006
Date of revision:
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Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
Phone: (0)1904 323776
Fax: (0)1904 323759
Web page: http://www.york.ac.uk/economics/
More information through EDIRC
Agency costs; managerial entrenchment; corporate governance mechanisms;
Find related papers by JEL classification:
- G3 - Financial Economics - - Corporate Finance and Governance
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-29 (All new papers)
- NEP-BEC-2006-01-29 (Business Economics)
- NEP-FIN-2006-01-29 (Finance)
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