Does political economy reduce agency costs? Some evidence from dividend policies around the world

This study shows that firms in proportional-electoral countries pay out lower dividends and that the correlation between a firm's growth potential and dividend payout ratio is weaker in proportional-electoral countries. However, firms in proportional-electoral countries that cross-list in majoritarian system countries, tend to pay out higher dividends and the negative relation between growth potential and dividend payout tend to be stronger than their peers that do not cross-list. For a few countries that changed their electoral system towards a more proportional system, we observe a decrease in dividend payout ratio and a weaker relation between growth and dividends after the change. Overall these results indicate that a country's political system affects the severity of agency problems. Further, the effect of legal origin on dividend policy reverses once we include the political economy variables in the regressions. We also document that the electoral system not only affects the amount of dividends paid by a firm but also the form of payment.

Corporate political connections, agency costs and audit quality

Purpose – The effect of political connections of agency costs has attracted considerable research attention due to the increasing recognition of the fact that political connection influences corporate decisions and outcomes. This paper aims to explore the association between corporate political connections and agency cost and examine whether audit quality moderates this association. Design/methodology/approach – A data set of Bangladeshi listed non-financial companies is used. A usable sample of 968 firm-year observations was drawn for the period from 2005 to 2013. Asset utilisation ratio, the interaction of Tobin’s Q and free cash flow and expense ratio are used as alternative proxies for agency costs; membership to Big 4 audit firms or local associates of Big 4 firms is used as a proxy for audit quality. Findings – Results show that politically connected firms exhibit higher agency costs than their unconnected counterparts, and audit quality moderates the relationship between political connection and agency costs. The results of this paper suggest the importance of audit quality to mitigate agency problem in an emerging economic setting. Research limitations/implications – The findings of this paper could be of interest to regulators wishing to focus regulatory effort on significant issues influencing stock market efficiency. The findings could also inform auditors in directing audit effort through a more complete assessment of risk and determining reasonable levels of audit fees. Finally, results could inform financial statement users to direct investments to firms with lower agency costs. Originality/value – To the knowledge of the authors, this study is one of the first to explore the relationship between political connection and agency costs, and the moderating effect of audit quality of this relationship.

Agency theory and accounting research : an overview of some conceptual and empirical issues

This chapter aims to give the reader an overview of agency theory (AT) and its application in accounting research. It delineates the basic assumptions and concepts of AT and identifies the various measures that can be undertaken to minimise agency costs. The chapter also provides a summary of the commonalities and differences across the three major paradigms adopted by accounting researches when using an agency framework: Principal-Agent, Transaction Cost Economics and Positivist (Rochester) model. Further, a review of some recent theoretical and empirical studies on the design of optimal contracts, namely those relating to implicit contracts, multi-agents and multi-period issues is undertaken. Several suggestions are made for future studies adopting an AT-based approach.

A principal components analysis of New Zealand Board compostion : factors that influence an export strategy

Principal Topic Internationalisation strategies are important for company expansion because New Zealand, with its four million people, has such a small market. There may or may not exist ”agency costs” in the use of Outside Directors. Ownership patterns may also influence Internationalisation.

Methodology/Key Propositions This study uses Principal Component Analysis both in a grounded theory approach and in a confirmatory approach.

Results and Implications We find evidence that in New Zealand, contrary to some previous research elsewhere, outside Directors actually have less influence on Internationalisation than Inside Directors. Private ownership also seems to have a greater association with Internationalisation than other ownership types. A highly reliable sample of 1989 New Zealand company directors showed that such factors as gender, age and location and even industry sector were irrelevant. Two factors were important in explaining whether a company goes off-shore. These are the size and magnitude of the company as well as the ownership type and role of the CEO. In essence, this study validates New Zealand’s present strategy of ”picking winners”, that is, selecting firms based upon factor components. This study adds strength to that strategy because it identifies the concrete components that should be taken into account when picking companies for special treatment, e.g. export promotion.

Impact of board composition and ownership on internationalisation strategy amongst small New Zealand firms

Internationalisation strategies are important for company expansion because New Zealand, with its four million people, has such a small market. Nonetheless, there mayor may not exist ;"agency costs" in the use of Outside Directors. Ownership patterns may also influence Internationalization Strategy. Using Binary Correlation, N-Way Cross-Tabulation, and Principal Component Analysis, we find evidence that Outside Directors have less influence on Internationalisation Strategy than Inside Directors. Family ownership also seems to have a greater association than non-family owned companies. Despite substantial limitations, the methods and models proposed seem to have some utility in examining the association of Internationalisation Strategy with Board Composition and Ownership Patterns.

Political competition and environmental reporting: evidence from New Zealand local governments

Purpose - The purpose of this paper is to investigate the relationship between "political competition" and "environmental reporting" by New Zealand local governments. Design/methodology/approach - The research method includes a longitudinal analysis of environmental reporting by New Zealand local governments in their annual reports for the financial years 2005-2006 to 2009-2010. "Content analysis" was used to attach scores to the extent of environmental reporting. The "number of candidates divided by the number of available positions at the previous election" was used as the proxy for "political competition". Findings - The study reports a positive relationship between "political competition" and "environmental reporting" in 2007-2008. The number of local governments reporting voluntary environmental information increased in 2006-2007 and 2007-2008 compared to 2005-2006, followed by a reduction in such numbers following the 2007-2008 financial year. This trend in disclosure can be attributed to the local government elections in October 2007. This finding is consistent with the expectation of "agency theory" and provides insight into the pattern of perceived agency costs. The study also finds a dearth in reporting "monetary" and "bad" news. Originality/value - The study contributes towards the previous literature on environmental reporting by concentrating on the public sector and New Zealand, together with investigating the relationship of such reporting with "political competition" through a longitudinal analysis. The theoretical contribution of this study is the adoption of "agency theory" in the context of public sector voluntary reporting and investigating the significance attached by agents to environmental reporting to minimise agency cost. The practical contribution of the study is in the area of future development of reporting standards in regards to environmental reporting.

The impact of mandatory versus voluntary auditor switches on stock liquidity: some Korean evidence

Using Korean listed firms subject to the auditor "designation rule", this paper shows that (1) firms that switch auditors exhibit lower stock liquidity than firms that do not switch auditors, and (2) the negative liquidity effect of auditor switches is concentrated in firms that switch to low-quality auditors. Meanwhile, firms that switch auditors under the auditor designation system do not exhibit lower stock liquidity, consistent with audit designation mitigating the concerns about audit quality deterioration around auditor changes. Furthermore, we find that foreign ownership has a mitigating impact on the negative relation between auditor switches and stock liquidity, suggesting that investors are less concerned about auditor switches when an alternative monitoring mechanism exists.

Perks and the informativeness of stock prices in the Chinese market

While the literature shows that perks can affect firm values positively or negatively, we argue that firms with higher perks are more likely to be associated with a lower quality of financial reporting, which, in turn, can affect the informativeness of stock prices. Based on hand-collected data on perks from Chinese listed firms, we find that firms with lower perks are associated with higher informativeness of stock prices (or lower R-square). Moreover, the positive association between perks and R-square is shown to be weaker for firms with higher financial reporting quality through audit and earnings quality measures.

Short-term debt maturity, monitoring and accruals-based earnings management

Most prior studies assume a positive relation between debt and earnings management, consistent with the financial distress theory. However, the empirical evidence for financial distress theory is mixed. Another stream of studies argues that lenders of short-term debt play a monitoring role over management, especially when the firm's creditworthiness is not in doubt. To explore the implications of these arguments on managers' earnings management incentives, we examine a sample of US firms over the period 2003-2006 and find that short-term debt is positively associated with accruals-based earnings management (measured by discretionary accruals), consistent with the financial distress theory. We also find that this relation is significantly weaker for firms that are of higher creditworthiness (i.e. investment grade firms), consistent with monitoring benefits outweighing financial distress reasons for managing earnings.

A macro-analysis of financial decisions : an examination of special dividend announcements

This paper investigates macro-level explanations for why firms pay special dividends. We find both the business cycle and market condition affect the propensity and abnormal returns of special dividends. Firms are more likely to announce special dividends in market or economic downturns than upturns. They tend to use additional cash for business growth in expansions and distribute it to reduce agency costs in contractions. The signaling effect of special dividends is stronger and companies with these announcements are better performers in recessions than in expansions. This research sheds light on and enhances the understanding of why firms disburse extra cash dividends at the aggregate level.

Possessed by the beast: subjectivity and agency in pictures in the dark and foxspell

The first book to assess critically mystery in children's literature, this collection charts a development from religious mystery through rationally solved detective fictions to insoluble supernatural and horror mysteries. Written by internationally recognised scholars in the field, these thirteen original essays offer challenging and innovative readings of both classic and popular mysteries for children. This volume will be essential and stimulating reading for anyone with an interest in children's literature or in mystery fiction.

Employer benefits and costs of employing a person with a disability

This paper is based on results of a national study in Australia. Questionnaires were completed by 643 employers, each of whom had employed a person with a disability between 1996-1998. Employers rated the importance of several factors relevant to decisions to hire and retain a person with a disability. Individual factors were rated most important, with grooming/hygiene and work-performance factors rated highest. Management factors and cost factors were rated moderately important. Social factors were rated least important. Analyses of variance were conducted, identifying several employer differences in ratings. The paper discusses employer values as well as the need to include employers in a partnership approach.

Estimating quality costs in an automotive stamping plant through the use of simulation

The pressures of modern manufacturing require that the quality-cost benefits are determined when evaluating new procedures or alternative operating policies. Traditionally, cost reports and other quality metrics have been used for this purpose. However, the interactions between the main quality cost drivers cannot be understood at the superficial level and the effect that a new process or an alternative operating policy may have on quality costs is difficult to determine. An alternative to the traditional costing methods is simulation. The current work uses simulation to evaluate quality costs in an automotive stamping plant where the quality control is determined by operator inspection of their own work. Self-inspection quality control provides instantaneous feedback of quality problems, allowing for quick rectification. However, the difficult nature of surface finish inspection of automotive panels can create inspection and control errors. A simulation model was developed to investigate the cost effects of inspection and control errors and it was found that inspection error had a significant effect in increasing total quality cost, with the magnitude of this increase dependent on the level of control. Further, the simulation found that the lowest cost quality control policy was that which allowed a number of defective panels to accumulate before resetting the press-line.