Ownership Structure, Corporate Governance and Agency Cost of Manufacturing Companies in Nigeria

Abstract

The article investigates the role of ownership structure and corporate governance in mitigating agency cost in manufacturing firms listed on the Nigerian Stock Exchange during the period 2007 to 2017. We used the proxy agency cost index to measure agency cost. This is based on the argument that agency cost can be seen via inefficient asset utilization (because of poor investments), excessive production costs and wasteful managerial behaviour (resulting in higher expenses), and insufficient effort exerted by management (resulting in lower revenues and earnings). Multivariate fixed effect regression is used to analyse the data. Explanatory variables consist of governance and ownership related attributes such as managerial ownership, ownership concentration, board size, director’s remuneration and board independence. We also used free cash flow, leverage and operating expenses as control variables. The results show that higher managerial ownership, operating expense and free cash flow had significant influence on agency cost.

Keywords: Agency cost, corporate governance, ownership structure, Manufacturing.