Agency Theory and Value of Agro -Allied Firm in Nigeria
Keywords:
Agency Theory, Capital Structure, Agro-Allied Firm, Nigeria
Abstract
This study evaluates relationships between agency theory and firm value of quoted Agro- Allied firm in Nigeria. The levin, Lin and Chu (LLC) model was used in analysis for panel unit root, while Johnson’s Co –integration tested for long run relationship of variables. Other tests conducted include Error correction model and Pair wise Granger causality which were all employed in processing ex-post panel data obtained from the Nigerian stock exchange for the period 2014 through 2021. Findings from results reveal that Agency cost has a significant and positive relationship with both dependent variables and also shows evidence of long run relationship. As such, the study concludes that agency Cost has an impact on firm value, and recommends that shareholders should be pro active in dealing with agency problems by resolving conflicts with the least possible agency cost ,and also formulate strategic guidelines to cut down on agency costs since optimality rests at the point where Agency cost is at the barest minimal and achieving this will obviously enhance firm value of Agro Allied firms in Nigeria.
References
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2. Agba, A. M. O., Mboto, W. A. &Agba, M. S. (2013). Wages or other Conditions: A critical assessment of factors in workers performance in Nigeria. International Journal of Academic Research in Business and Social Sciences, 3(7), 489-505.
3. Ainslie, G. (1991). Derivation of rational" economic behavior from hyperbolic discount curves. The American Economic Review, 81(2), 334-340.
4. Ajao, M. G., &Osayuwu, R. (2012). Testing the weak form of efficient market hypothesis in Nigerian capital market. Accounting and Finance Research. 1(1), 169-179
5. Akpan, E. O. & Amran, N. A. (2014). Board characteristics and company performance: evidence from Nigeria. Journal of Finance and Accounting, 2(3), 84-89.
6. Allen, F., & Gale, D., (2010). Bubbles and crises.TTzeEconomic Journal, 110,(460), 236-255.
7. Altman, E. (2002). A further empirical investigation of bankruptcy costs question. The Journal of Finance, 39(4), 1067-1089.
8. Ang, W., Cole S., & Lin, (2016). Top executive compensation under alternate ownership and governance structure. International journal of finance, 5(7), 178-197.
9. Ang,J.S., Cole, R.A., & Lin, J.W. (2016).Agency costs and ownership structure. Journal of Finance, 5, 81-106.
10. Armada, M. R., Nunes, P. M. &Serrasqueiro, Z. S. (2011). Pecking order theory versus tradeoff theory: are service SMEs' capital structure decisions different? Service Business, 5(4), 381-409.
11. Armstrong, C. S., (2012). Corporate governance, compensation consultants, and CEO pay levels. Review of Accounting Studies, 17(2), 322-351.
12. Babalola, Y. A. (2012). The effects of optimal capital structure on firms' performances in Nigeria. Journal of Emerging Trends in Economics and Management Sciences (JETEMS),3(2) 131-133.
13. Baker, M., &Wurgler, J. (2002).Market timing and capital structure. The Journal of Finance , 57(1), 1-32.
14. Balafas, N., &Florackis, C. (2014). CEO compensation and future shareholder returns: Evidence from the London Stock Exchange. Journal of Empirical Finance, 27, 97-115.
15. Banker, R. D., (2013).The relation between CEO compensation and past performance. The
16. Accounting Review, 8(8), 1-30. Baxter, N. (1967). Leverage, risk of gain and the cost of capital. Journal of Finance, 1(22},356-403.
17. Bebchuk, L. A., & Fried, J. M. (2016).Poywithout Performance: The Unfulfilled Promise of Executive Compensation. Cambridge, MA: Harvard University Press.
18. Bebchuk, L. A., (2011). The CEO pay slice. Journal of Financial Economics, 102, 199-221.
19. Bebchuk, L. A., Cremers, K. M., &Peyer, U. C. (2011). The CEO pay slice. Journal of Financial Economics, 102, 199-221.
20. Bettis, C., Bizjak, J., Coles, J., Kalpathy, S., (2015). Stock and option grants with performance-based vesting provisions. Review of Financial Studies, 23, 3849-3888.
21. Bosse, D. A., & Phillips, R. A. (2016). Agency theory and bounded self-interest. Academy of Management Review, 41, 276-297.
22. Breuer, W., &Gurtler, M. (2008). 50 years after MM: recent developments in corporate finance. Journal of Business economics, 6(2), 301-331.
23. Brigham, E. F., & Ehrhardt, M. C. (2010).Financial management: theory and practice.engageSouth Western.
24. Brisker, E. R., & Wang, W. (2017).CEO's inside debt and dynamics of capital structurQ.Financial Management. 46, 655-685.
25. Brisker, E. R., (2014).CEO's inside debt and dynamics of capital structure.Financial Management. 46, 655-685.
26. Bureau van Dijk (2016) company information across Europe. Journal of FinancialEconomics, 102, 199-221. Cadman, B., Carter, M. &Hillegeist, S., (2010). The incentives of compensation consultantsand CEO pay. Journal of Accounting and Economics, 4(9), 263-280.
27. Chakravarty, A., &Grewal, R. (2016). Analyst earning forecasts and advertising and R&D budgets: Role of agency theoretic monitoring and bonding costs. Journal of Marketing Research, 53, 580-596.
28. Chandrasekharan CV (2012). Determinants of capital structure in the Nigerian listed firms. International Journal of Advanced Research in Management and Social Sciences 1(2):108-133.
29. Chen, J. J. (2004). Determinants of capital structure of Chinese-listed companies. Journal of Business Research, 57(12), 1341-1351.
30. Chew, D. H. (2003). The revolution in corporate finance (4 edition edj.VSA: Wiley-Blackwell.
31. Chowdhury, A., & Chowdhury, S. P. (2017). Impact of capital structure on firm's value: Evidence from Bangladesh. Business and Economic Horizons, 3 (3), 111-122
32. Chowdhury, A., & Chowdhury, S. P.(2017). Impact of capital structure on firm's value: Evidence from Bangladesh. Business and Economic Horizons, 3: 111-22.
33. Chu, J., J. Faasse, and P. R. Rau, (2016). Do compensation consultants enable higher CEO pay? A disclosure rule change as separation mechanism, University of Cambridge working paper.
34. Conyon, M. J. (2013). Executive compensation and board governance in US firms. The Economic Journal, 124(574), F60-F89.
35. Conyon, M. J.; Peck, S. !.;& Sadler, G. V. (2011). Compensation consultants and executive pay: Evidence from the United States and the United Kingdom. Academy Management Perspectives 23(1), 43- 55
36. Cooper, M., (2016).Performance for pay?The relation between CEO incentive compensation and future market value performance.Jowr«a/ of Financial Economics, 102, 199-221.
37. Daily, C. M., (2003). Governance through ownership: Centuries of practice, decades of research. Academy of Management Journal, 46(2), 151-158.
38. Datta, S. (2005). Managerial stock ownership and the maturity structure of corporate debt. Journal of Finance, 60(3), 2333-2350.
39. Demsetz, H. (1983). The structure of ownership and the theory of the firmJournal of Law and Economics, 26,375-26,390.
40. Demsetz, H. (1983): The structure of ownership and the theory of the firmJournal of Law and Economics, 2(6),375-390.
41. DeYoung, R., (2013). Executive compensation and business policy choices at U.S. commercial banks. Journal of Financial and Quantitative Analysis, 48, 165-196.
42. Donaldson, L. (1961). The ethereal hand: Organizational economics and management theory. Academy of Management Review, 15(3), 369-381.
43. Dyck, A.,& Zingales, L. (2004). Private benefit of control: An international comparison. The Journal of Finance, LIX, (2), 537-600.
44. Dyck, A., & Zingales, L. (2004). Private Benefit of Control: An International Comparison. The Journal of Finance, LIX(2),537-600.
45. Eisenhardt, K. M. (1989). Agency theory: An assessment and review. Academy of management review, 14(1), 57-74.
46. Eisenhardt, K.M. (1989). Building theories from case study research.Academy of Management Review, 14(4), 532-550.
47. Eric, R., Brisker, Don, M., Autore, G. C., & David, R. P. (2014).Executive compensation structure and the motivations for seasoned equity offerings. Journal of Banking and Finance, 40(1), 330-345.
48. Falato, A., (2015). Which skills matter in the market for CEOs? Evidence from pay for CEO credentials. Management Science, 61, 2845-2869.
49. Falato, A., Li, D., (2015). Which skills matter in the market for CEOs? Evidence from pay for CEO credentials. Management Science, 61, 2845-2869.
50. Fama, E., (1980). Separation of ownership and control. Journal of Law and Economics, 26(2), 301-325.
51. Fama, E.F., & Jensen, M.C. (1983). Separation of ownership and control Journal of Law and Economics, 26(2), 301-325.
52. Fama, E.F., & Jensen, M.C. (1983): Separation of ownership and controlJournal of Law and Economics, 26(2), 301-325.
53. Feldman, E.R. (2018). Legacy divestitures: motives and implications. Organization Science, 25(3): 815-832.
54. Ferreira, M. A., & Vilela, A. S. (2004). Why do firms hold cash? Evidence from EMU countries.European Financial Management, 10 (2),295-19.
55. Ferreira, M. A., & Vilela, A. S. (2004). Why do firms hold cash? Evidence from EMU countries. European Financial Management, 10(3), 295-319.
56. Fleming, G., (2015). Agency costs and ownership structure in Australia. Pacific-Basin Finance Journal, 13, 29-52.
57. Frierman, M., & Viswanath, P. (2019).Agency problems of debt, convertible securities, and deviations from absolute priority in bankruptcy Journal of Law and Economics, 37(2), 455-476.
58. Frierman, M., &Viswanath, P. (2019).Agency problems of debt, convertible securities, and deviations from absolute priority in bankruptcy. Journal of Law and Economics, 37(2), 455-476.
59. Graham, J. R., (2012). Managerial attributes and executive compensation. Review of Financial Studies, 25, 144-186.
60. Harris, M., & ,Raviv, A. (]91'6).Optimal incentive contracts with imperfect information. Working paper.Carneg\Q-Me\\on University.
61. Heathfield, S.M. (1994).Bonus Pay. Retrieved on 24th July, 2019 from
62. Heron, R. A., & Lie, E. (2017). Do stock options overcome managerial risk aversion?Evidence from exercises of executive stock options. Management Science, 63, 3057-3071.
63. Hillier, D., Jaffe, J., Jordan, B., Ross, S. &Westerfield, R. (2010).Corporate Finance.
64. Berkshire: McGraw-Hill Education.
65. Hou, W. (2016). Executive compensation and the split share structure reform in China. The European Journal of Finance, 2(2), 506- 528.
66. Hou, W., Lee, E., Stathopoulos, K.., & Tong, Z. (2016). Executive compensation and the split share structure reform in China. The European Journal of Finance, 22, 506- 528.
67. Igben, R. O. (2004). Financial accounting made simple. ROL Publishers, Lagos State, 356 -362.
68. Indjejikian, R. J., Matejka, M., Merchant, K. A., & Van der Stede, W. A. (2014).Earnings targets and annual bonus incentives. The Accounting Review, 89, 1227-1258.
69. Isik, O. & Ince, A. R. (2016). Board size, board composition and performance: an investigation on Turkish Banks. International Business Research, 9(2), 74- 84.
70. Jahani, U., Zalghadr-Nasab, G. &Soofi, T. (2013). Corporate governance: Economic, management, and financial issues. Oxford University Press.
71. Jensen, M. C., &Meckling, W.H. (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-60.
72. Jensen, M., &Meckling, W. (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics 3, 305-360.
73. Jensen, M., (1986). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics 3, 305-360.
74. Jensen, M., (1991). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics 3, 305-360.
75. Jensen, M.C. (1986). Agency costs of free cash flow, corporate finance and takeovers. American Economic Review, 76(2), 323-39.
76. Jensen, M.C. (1986). Agency costs, free cash flow, corporate finance, and takeovers.The American Economic Review, 76 (2), 332-329.
77. Jensen, M.C. (1989).Eclipse of the public corporation.Harvard Business Review, 5 (3).61-7 4.
78. Jensen, M.C., & Meckling, W.H. (1976). Theory of the firm: Managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
79. Jensen, M.C., and Meckling, W.H. (1976): Theory of the firm: Managerial behaviour, agency costs and ownership structure.Journal of Financial Economics, 3(4),305-360.
80. Joh, S.W, (2003). Corporate governance and firm profitability: Evidence from Korea before the economic crisis. Journal of Financial Economics 68(2):287-322.
81. Johl, S. K, Johl, S. & Cooper, B. J (2015). Board characteristics and firm performance: evidence from Malaysian public listed firms. Journal of Economics, Business and Management, 3(2), 239-243.
82. Jong, de, A. (2002).The discipline role of leverage in Dutch firms. European Finance Review, 6(1), 31-62.
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Published
2024-01-02
How to Cite
Udeh, E.F. (2024). Agency Theory and Value of Agro -Allied Firm in Nigeria. International Journal on Economics, Finance and Sustainable Development, 6(1), 69-100. https://doi.org/10.31149/ijefsd.v6i1.5191
Section
Articles
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