The effects of board experience and independence on mitigating agency conflict

Abstract

Purpose

The purpose of this paper is to investigate the impact of board experience and independence on mitigating agency conflict between shareholders and managers.

Design/methodology/approach

This paper uses a panel data of 137 firms listed on stock exchanges in Ghana and Nigeria over a period of seven years. System generalized method of moments and other estimation techniques were adopted for the study. Using agency and resource dependence theories, board experience and independence ignored in previous studies are selected for the study.

Findings

The findings of this paper indicate a negative and statistically significant relationship between board experience, board independence, and agency conflict. A further examination using an agency score computed from the principal factor analysis of the four main agency proxies indicates a significant and negative relationship between board independence and agency conflict, but a negative and statistically non-significant relation between board experience and agency conflict.

Practical implications

The authors’ evidence has important implications for countries that are currently or contemplating pursuing board reforms to recommend the appointment of more independent and experience directors to corporate board.

Originality/value

This paper introduces a new proxy for assessing human and social capital of directors to test the integration hypothesis of a unique data set from Ghana and Nigeria toward mitigating agency conflict.

Citation

Agyemang Badu, E. and Appiah, K.O. (2017), "The effects of board experience and independence on mitigating agency conflict", Journal of Accounting in Emerging Economies, Vol. 7 No. 4, pp. 445-467. https://doi.org/10.1108/JAEE-08-2016-0072