Ownership, Governance and Agency Costs in New Zealand Listed Companies

Abstract

This paper investigates the impact of governance variables on agency costs in New Zealand listed companies during the period of 2001-2007. Following extant literature, it applies three measures of agency costs (i.e. the ratio of sales-to-total assets, Tobin's Q as growth prospect/firm performance and the interaction of free cash flows and growth prospects) and a set of internal governance variables including mutually exclusive ownership concentration variables. Empirical results reveal that board shareholding and audit committee size have agency costs mitigating effects and CEO-chair duality has aggravating effects. While alternative ownership concentration variable Top 20 shareholding shows no effect, other governance instruments such as, board size and independence, audit committee independence and leverage ratio indicate inconclusive results of either reducing or enhancing agency costs depending on the proxy used. Other control variables show expected relations with agency costs. These findings suggest that while a variety of mechanisms are consistent with enhancement of firm value, others are either detrimental or ineffective in New Zealand listed companies.