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What Reduces the Impact of Managerial Entrenchment on Agency Costs? Evidence for UK Firms

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Author Info
Chrisostomos Florackis
Aydin Ozkan
Abstract

This 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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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 06/03.

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Date of creation: Jan 2006
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Handle: RePEc:yor:yorken:06/03

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Related research
Keywords: Agency costs; managerial entrenchment; corporate governance mechanisms;

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Find related papers by JEL classification:
G3 - Financial Economics - - Corporate Finance and Governance
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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