The influence of corporate governance on agency cost of firms listed in the Nairobi Securities Exchange
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Date
2013Author
Odhiambo, Ronald O
Type
ThesisLanguage
enMetadata
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The study examines the influence of governance mechanisms on firm agency cost.
Governance has been theorized to lead to the realignment of the interests of agents to those of
the principles affecting firm agency cost. Good corporate governance assists the board and
management to pursue objectives that are in the interest of the organization and its
stakeholders and facilitates effective monitoring reducing firm agency cost. Capital Markets
Authority in response to the growing importance of corporate governance issues, developed
the guidelines for good corporate governance practices by public listed companies in Kenya.
This study evaluates the influence of the governance mechanism as proposed by this
guideline in reducing agency cost of firms listed in the Nairobi Securities Exchange. The
study is based on a sample of 34 firms listed in the Nairobi Securities Exchange during the
period 2002-2012. Panel data estimation technique is used in the analysis of the data. The
study finds both significant fixed and random effects in the data. A fixed effect model is
estimated as individual effects are found to be significantly correlated to at least one of the
regressors in the model. The study finds the presence of audit committees and that of nonexecutive
board members to significantly reduce firm agency cost. The influence of firm size
and leverage is also found to be significant. Larger firms are found to have a higher agency
cost compared to smaller firms. Equally firms that finance a higher proportion of their assets
through debt are found to have higher agency cost than those with lower proportions of their
assets being financed through debt. The study however did not find any significant influence
of the presence of nomination committee, duality, institutional ownership and board
ownership. The study recommends policy to improve flow of information, reduce debt related
agency costs and bankruptcy costs in the capital markets. It also recommends policy to
increase percentage of independent board members and use of audit committees to reduce
firm agency cost.
Citation
Odhiambo,Ronald O.,2013.The Influence Of Corporate Governance On Agency Cost Of Firms Listed In The Nairobi Securities Exchange.Publisher
University of Nairobi College of Humanities and Social Sciences