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

AutorJorge Andrés Muñoz Mendoza, Sandra María Sepúlveda Yelpo, Carmen Lissette Veloso Ramos, Carlos Leandro Delgado Fuentealba
CargoUniversidad de Concepción, Los Ángeles, Bío-Bio, Chile/Universidad de Concepción, Los Ángeles, Bío-Bio, Chile/Universidad de Concepción, Los Ángeles, Bío-Bio, Chile/Universidad de Concepción, Chillán, Ñuble, Chile
https://bar.anpad.org.br
BAR Brazilian Administration Review
Vol. 18, No. 1, Art. 5, e190112, 2021
https://doi.org/10.1590/1807-7692bar2021190112
Research Article
Monitoring and Managerial Discretion Effects on Agency
Costs: Evidence from an Emerging Economy
Jorge Andrés Muñoz Mendoza1
Sandra María Sepúlveda Yelpo1
Carmen Lissette Veloso Ramos1
Carlos Leandro Delgado Fuentealba2
1Universidad de Concepción, Los Ángeles, Bío-Bio, Chile.
2Universidad de Concepción, Chillán, Ñuble, Chile.
Received 13 September 2019. This paper was with the authors for two revisions. Accepted 22 April 2021.
First published online 20 May 2021.
Editor-in-chief: Carlo Gabriel Porto Bellini (Universidade Federal da Paraíba, João Pessoa, PB, Brazil)
Associate editor: Josete Florêncio dos Santos (Universidade Federal de Pernambuco, Recife, PE, Brazil), Gustavo
Alfonso Barrera Verdugo (Universidad de Las Américas, Chile)
Reviewers: Antonio Zoratto Sanvicente (Fundação Getulio Vargas, São Paulo, SP, Brazil), and two anonymous
reviewers
Editorial assistants: Kler Godoy and Simone Rafael (ANPAD, Maringá, PR, Brazil)
J. A. Muñoz Mendoza, S. M. Sepúlveda Yelpo, C. L. Veloso Ramos, C. L. Delgado Fuentealba 2
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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 non-
linear 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.
Keywords: agency costs; managerial discretion; monitoring; growth opportunities
JEL Code: G30, G32, G34

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