Journal of the Korean Data and Information Science Society

The Korean Data and Information Science Society (한국데이터정보과학회)
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The significance of proxies for agency costs under different governance approaches

  • Shin, Yang-Gyu (Department of Asset Management, Daegu Haany University) ;
  • Reddy, Krishna (Department of Finance, Faculty of Management, University of Waikato)
  • Received : 2010.01.26
  • Accepted : 2010.03.15
  • Published : 2010.03.31
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Abstract

This study examines the impact different proxies of agency costs have on companies under different governance approaches. The two specific proxies of agency costs used include: (i) the ratio of operating expenses to annual sales; and (ii) the ratio of annual sales to total assets. Our study is based on earlier works of Ang et al. (2000) and Fleming et al. (2005). A comparison of results for small unlisted companies both in US and Australia indicate that agency cost measures have statistically: (1) different result under rule-based governance mechanisms; and (2) the same results under principle-based governance mechanisms. Our findings support the view that the effectiveness different measures of agency cost is dependent on country specific governance facto as well as on the governance approaches adopted. Our results offer insights to both practitioners and policy makers regarding the usefulness of different proxies of agency costs when companies adopt principle-based corporate governance approaches versus rule-based approaches.

Keywords

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