Corporate governance mechanisms and agency costs: cross-country analysis

• Date: 04 April 2016
• DOI: https://doi.org/10.1108/CG-04-2015-0043
• Published date: 04 April 2016
• Pages: 347-360
• Author: Tatiana Garanina,Elina Kaikova
• Subject Matter: Strategy,Corporate governance

Corporate governance mechanisms and

agency costs: cross-country analysis

Tatiana Garanina and Elina Kaikova

Tatiana Garanina is

Associate Professor at

the Graduate School of

Management, St.

Petersburg University,

St. Petersburg, Russia.

Elina Kaikova is Research

Assistant at the

Norwegian School of

Economics, Bergen,

Norway.

Abstract

Purpose –The purpose of this paper is to investigate whether specific corporate governance

mechanisms, such as board size, board composition, leverage and firm size, tend to mitigate agency

cost occurrence in the USA, Russia and Norway.

Design/methodology/approach –The authors analyze the sample of 243 US, 196 Russian and 175

Norwegian joint stock companies for the period 2004-2012. The regression analysis is applied to test the

models.

Findings –It is revealed that larger boards increase agency costs (measured by asset utilization ratio

and asset liquidity ratio) in all sample companies. The proportion of female members has a very slight

positive effect in US companies, a negative influence on agency costs in the Norwegian sample and is

not significant in the Russian market. The authors find that the big Russian and US companies in the

samples of this paper have lower agency costs.

Practical implications –The results of this paper show which agency-mitigation mechanisms work

more effectively in companies operating in the analyzed countries characterized by specific corporate

governance models.

Originality/value –The main contribution of this paper to the empirical literature is that it extends the

stream of agency research by introducing new, emerging markets: represented by Scandinavian

(depicted by the Norwegian sample) and Russian companies. Considering that each market – US,

Norwegian and Russian – represents significant distinguishing features in their institutional framework,

the paper provides an important research setting in which corporate governance mechanisms can be

analyzed from the perspective of a country’s peculiar characteristics. Unlike other agency cost studies,

this paper accounts for the gender diversity component in the companies and contributes to gender

diversity issues.

Keywords Gender diversity, Agency costs, Board size, Corporate governance mechanisms,

Cross-country analysis

Paper type Research paper

Introduction

The complexity and uncertainty of the contemporary business environment have a very

significant influence on companies when they shape their actions and identify key

objectives. In light of a number of corporate scandals, companies are paying more

attention to corporate governance practices, particularly aligning the interests of

shareholders and managers to minimize the exposure to the principal–agent problem.

Following Jensen and Meckling (1976), the agency problem gives rise to agency costs,

which is defined as the sum of the monitoring expenditures by the principal, the bonding

costs by the agent and the residual loss.

The objective of this paper is to define the specific corporate governance mechanisms,

such as board size, board composition, leverage and firm size, that tend to mitigate agency

cost occurrence in the USA, Russia and Norway.

Received 9 April 2015

Revised 21 December 2015

Accepted 22 December 2015

The authors acknowledge

Saint-Petersburg State

University for a research grant

number 16.38.297.2014 that

was used to collect the

Russian data.

DOI 10.1108/CG-04-2015-0043 VOL. 16 NO. 2 2016, pp. 347-360, © Emerald Group Publishing Limited, ISSN 1472-0701 CORPORATE GOVERNANCE PAGE 347