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The impact of external and internal corporate governance mechanisms on agency costs

Jonas Schäuble (Department of Financial Reporting and Audit, ESCP Europe Business School - Paris Campus, Paris, France)

Corporate Governance

ISSN: 1472-0701

Article publication date: 5 September 2018

Issue publication date: 4 February 2019

4576

Abstract

Purpose

The purpose of this paper is to investigate the impact of external and internal corporate governance mechanisms on agency costs.

Design/methodology/approach

The author uses data from German firms that were listed in the regulated market of the Frankfurt Stock exchange during 2006-2011. Agency costs were measured using stochastic frontier analysis, a relatively new approach to estimate agency costs. The regression analysis is applied to test the model.

Findings

The results indicate that an industry specialized audit firm, the presence of a large audit firm, abnormal audit fees, management ownership and variable management compensation are significantly negatively associated with the level of a firms’ agency costs. In contrast, this seems not to be true for the existence of an audit committee for which the results of the paper document a non-significant association.

Originality/value

The paper contributes to the existing literature in several ways. First, the research design is to the best of the authors’ knowledge the first that investigates the influence of different corporate governance mechanisms on the level of agency costs. Second, previous studies are mainly focused on the US audit market. This focus on the US audit market leaves uncertainties regarding the direction and magnitude of the empirical relationship in the European and German environmental context. Finally, the paper provides initial empirical evidence for a sample of German IFRS listed companies (IFRS – International Financial Reporting Standards).

Keywords

Citation

Schäuble, J. (2019), "The impact of external and internal corporate governance mechanisms on agency costs", Corporate Governance, Vol. 19 No. 1, pp. 1-22. https://doi.org/10.1108/CG-02-2018-0053

Publisher

:

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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