Monitoring and managerial discretion effects on agency costs: Evidence from an emerging economy

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Jorge Andrés Muñoz Mendoza
Sandra María Sepúlveda Yelpo
Carmen Lissette Veloso Ramos
Carlos Leandro Delgado Fuentealba

Abstract

We analyzed the effect of managerial ownership, leverage, and managerial discretion on the agency costs of 14,719 Chilean companies. The results of the instrumental variables (IV) regressions indicate that managerial ownership and capital structure have a negative and nonlinear effect on agency costs. Managerial ownership concentration is an effective means of internal control over agency costs, discarding the managerial entrenchment effect. The non-linear impact of debt suggests that for high leverage levels, agency costs would increase due to higher bankruptcy costs. Managerial discretion reduces agency costs; however, in firms with low growth opportunities, it increases them. These results have relevant implications for firms’ corporate policy and investors.

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How to Cite
Muñoz Mendoza, J. A., Sepúlveda Yelpo, S. M., Veloso Ramos, C. L., & Delgado Fuentealba, C. L. (2021). Monitoring and managerial discretion effects on agency costs: Evidence from an emerging economy. Brazilian Administration Review, 18(1), e190112. https://doi.org/10.1590/10.1590/1807-7692bar2021190112
Section
Research Articles