Agency Costs of Clothing Companies with Famous Brand

유명 의류 상호 기업의 대리인 비용에 관한 연구

  • Received : 2017.09.12
  • Accepted : 2017.10.26
  • Published : 2017.11.30


Motivated by the recent cases of negligent social responsibility as manifested by foreign luxury fashion brands in Korea, this study investigates whether agency costs depend on the sustainability of different types of corporate governance. Agency costs refer either to vertical costs arising from the relationship between stockholders and managers, or to horizontal costs associated with the potential conflicts between majority and minority stockholders. The firms with luxury fashion brand could spend large sums of money on maintenance of magnificent brand image, thereby increasing the agency cost. On the contrary, the firms may hold down wasteful spending to report a gaudily financial achievement. This results in mitigation of the agency cost. Agency costs are measured by the value of the principal component. First, three ratios are constructed: asset turnover, operating expense to sales, and earnings before interest, tax, and depreciation. Then, the scores of each of these ratios for individual firms in the sample are differenced from the ratios for the benchmark firm of S-OIL. S-OIL was designated as the best superior governance model firm for 2013 by CGS. We perform regression analysis of each agency cost index, luxury fashion brand dummy and a set of control variables. The regression results indicate that the agency costs of the firms with luxury fashion brand exceed those of control group in the fashion industry in the part of operating expenses, but the agency cost falls short of those of control group in the part of EBITD, thus the aggregate agency costs are not differential of those of the control group. In sensitivity test, the results are same that the agency cost of the firms are higher than those of the matching control group with PSM(propensity matching method). These results are corroborated by an additional analysis comparing the group of the companies with the best brands with the control group. The results raise doubts about the effectiveness of management of the firms with luxury fashion brand. This study has a limitation that the research has performed only for 2013 and this paper suggests that there is room for improvement in the current research methodology.


Supported by : 동의대학교


  1. 신성욱(2015), "기업 기배구조가 비대칭적 원가행태에 미치는 영향," 경영과 정보연구 34(2), 193-206
  2. 전영순(2008), "소유와 경영이 분리된 기업의 기배구조의 고찰: 국민은행의 사례를 중심으로," Korea Business Review 11(2), 169-199.
  3. Akerlof. George A.(1970), "The Markets for Lemons: Quality Uncertainty and the Market Mechanism," Quarterly Journal of Economics 84(3). 488-500.
  4. Brown, L., and M. Caylor(2004), "Corporate Governance and Firm Performance," working paper, Georgia State University.
  5. Diamond, D.W.(1991), "Monitoring and reputation: The choice between bank loans and directly placed debt," The Journal of Political Economy 99, 689-721.
  6. Djankov, S., La Porta, R., Lopez de Silanes, R., Shleifer, A.(2008), "The law and economics of self-dealing," Journal of Financial Economics, 88, 430-65.
  7. Doukas, J., Kim, C., and Pantzalis, C. (2000), "Security analysts, agency costs, and company characteristics," Financial Analysts Journal, 56(6), 54-63.
  8. Dyck, A. and Zingales, L.(2004), "Private Benefits of control, an international comparison," Journal of Finance, 59, 537-600.
  9. Gillan, S.(2006), "Recent developments in corporate governance: An overview," Journal of Corporate Finance, 12, 381-402.
  10. Gilson, R. J., and Gordon, J.(2003), "Controlling shareholders," Columbia Law and Economics Working Paper No. 228.
  11. Grossman, S., and Hart, O.(1980), "Takeover bids, the free-rider problem and the theory of the corporation," Bell Journal of Economics, 11, 42-64.
  12. Hermalin, B.(2005), "Trends in corporate governance," Journal of Finance 60, 2351-2384.
  13. Jensen, M., and W. Meckling(1976), "Theory of the firm: managerial behavior, agency costs and ownership structure," Journal of Financial Economics, 3, 305-360.
  14. Roe, M. J.(2005), The institutions of corporate governance in Handbook of New Institutional Economics, 371.
  15. Shleifer, A., and Vishny, R.W.(1997), A survey of corporate governance, Journal of Finance, 52, 737-789.
  16. Sridhar Gogineni, Scott C. Linn, Pradeep K. Yadav(2012), "Ownership Structure, Managment Control and Agency Cost: Direct Empirical Evidence," Working Paper.
  17. Tirole, J.(2006), The theory of corporate finance, Princeton. NJ: Princeton University Press.
  18. Williamson, O.E.(1967), Hierarchical control and optimum firm size. Journal of Political Economy, 75, 123-138.
  19. Williamson, O.E.(1985), The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting. New York: The Free Press.