Determinants of Agency Costs: Evidence from Non-Bank Financial Institutions of Bangladesh

The main purpose of the research is to determine the factors that influence agency costs in listed non-bank financial institutions of Bangladesh. The following eight factors have been considered in this study: board size, percentage of independent directors, and percentage of female directors under board characteristics; percentage of managerial ownership, institutional ownership, and foreign ownership under ownership structure; and leverage and firm size under firm characteristics. To measure agency costs, the asset utilization ratio (AUR) and expense ratio (ER) have been used as proxies. The regression results demonstrate that board size, institutional ownership and leverage are all inversely and significantly associated to agency costs, but managerial ownership has a significant and positive relationship. On the other hand, no significant relationship has been found among the percentage of independent directors, female directors and firm size with agency costs. However, the nature of the relationship between the percentage of foreign ownership and agency costs could not be generalized. The findings of this study will assist financial institution executives in Bangladesh in understanding the existing factors that influence agency costs and will help them in reducing agency costs by identifying and addressing the causes.