| dc.description.abstract | Agency costs result from the conflict of interest between managers and shareholders. Corporate governance is the mechanism to resolve agency problems; therefore, corporate governance is the system by which companies are directed and controlled, and thus is concerned primarily with management and stewardship issues. However, this has not been the case. Even with institutionalisation of good corporate mechanisms in companies there is evidence of collapse of some of companies.
Therefore, the purpose of this study was to examine the relationship between corporate governance mechanism and agency cost for firms listed in Nairobi Stock Exchange. Specifically, the study established whether there is relationship between the dependent variable i.e., agency cost measured by return on assets and the independent variable corporate governance mechanism measured by auditors fees, board remuneration and size of board, management fees and ownership by directors.
The descriptive research methodology was adopted in this study. The population of interest in this study consists of all 47 quoted companies in the main investment market segment, NSE between 2007 and 2008. The study purposively sampled 20 companies in the main investment market segment, four from each segment. Data was obtained from financial statements of the twenty companies to be covered, and is also published by NSE. Descriptive statistics were used to describe the data. Graphical, correlation and regression analysis were used to analysis to achieve the study objective in data analysis.
Graphical presentation of variables revealed that, first, institutionalization of corporate governance seems to inversely influence agency cost. Correlation matrix showed that there is a strong correlation between agency costs and good corporate governance. Institutionalisation of good corporate governance costs: audits fees, management fees and director ownership were highly related with return on asset as a measure of agency costs. Regression results revealed that institutionalization of good corporate governance costs: audits fees, management fees and director ownership have strong and significance marginal effects on returns on asset and hence they were found to mitigate to agency costs.
Thus institutionalization of good corporate governance costs: audits fees, management fees and director ownership have strong and significance marginal effects on returns on asset and hence they were found to mitigate to agency costs. Thus, there exists negative relationship between corporate governance mechanisms and agency cost for the firms studied. From the study, it can be concluded that the institutionalization of good corporate governance can help reduce (mitigate) the agency costs resulting to high return on asset for the companies quoted on the Nairobi Stock Exchange. The study also reveals that good corporate governance does not increase the agency costs. Therefore the study concludes that there is no financial burden in institutionalizing corporate governance | en_US |
