Relatioship between managerial ownership and agency cost of listed companies at the Nairobi securities exchange

Abstract

The objective of the study was to investigate the relationship between managerial ownership and agency cost of listed companies at the Nairobi Securities Exchange. The following research question guided the study: how does the level of managerial ownership relate to agency costs of listed firms? In answering this question, the study applied historical data for the annual totals for audit costs, directors’ remuneration, and the total managerial ownership; all of which were obtained from the Nairobi Securities Exchange and the Capital Markets Authority data banks. The correlational research design was used in the study. The study covered a target population of all companies quoted at Nairobi Securities Exchange as at 20th July 2012. This study considered a sampling frame of all the listed companies at the stock market. Sampling was conducted in two stages. The first stage involved selection of the sample firms while the second stage involved selection of the sample scope (period). The study used secondary data from Nairobi Security Exchange. Statistical Package for Social Scientist (SPSS) was used to aid in analyzing data. The F-test was used to measure the association between the dependent and independent variables while regression analysis was applied to determine the effect of managerial ownership on the agency costs. A simple regression was used to test the main model and t-test was used as a test of significance. The key findings revealed that there was a positive correlation between level of managerial ownership and agency costs. The main conclusion from our analysis is that managerial ownership does influence firms’ agency costs. We find a positive effect of managerial ownership on agency costs, with the strength of the relationship being notably highCompanies whose managers have high shareholding interests exhibit increased spending on board remuneration and audit