Ownership structure and agency costs: Evidence of emerging economy

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Abstract

The core objective of this study is to investigate the effect of ownership structure components on agency costs for 26 firms listed on the Palestine Exchange (PEX) between 2010 and 2019. The fixed-effects model was used to analyze cross-sectional data over time (panel data), and the multiple linear regression analysis was used to test the study hypotheses. The study found a positive, statistically significant effect of both board ownership and ownership concentration on agency costs, this indicates that whenever the ownership of board members in the firms listed on the PEX increases, leads to an increase in agency costs in these firms, reducing the performance of the firm, motivating management to seek to secure its interest and not to maximize the value of the firm. Similarly, whenever ownership increases in the hands of a few investors in the firms listed on the PEX, this leads to an increase in agency costs in these firms, and this relationship may be due to the majority’s ability to exploit the company’s capabilities for their goals and interests. Another main result of the study was a negative, statistically significant effect of institutional ownership on agency costs in the firms listed on the PEX.

Keywords: Agency Costs, Ownership Structure, Palestine Exchange

Authors’ individual contribution: Conceptualisation — M.N.T. and N.A.K.; Methodology — M.N.T.; Investigation — M.N.T.; Resources — M.N.T. and N.A.K.; Writing — Original Draft — M.N.T. and N.A.K.; Writing — Review & Editing — M.N.T. and N.A.K.; Funding Acquisition — M.N.T.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G32, G34, M48

Received: 28.06.2022
Accepted: 30.11.2022
Published online: 02.12.2022

How to cite this paper: Turshan, M. N., & Karim, N. A. (2022). Ownership structure and agency costs: Evidence of emerging economy [Special issue]. Corporate Governance and Organizational Behavior Review, 6(4), 246–252. https://doi.org/10.22495/cgobrv6i4sip5