Do board composition and ownership structure mitigate agency cost : evidence from listed Saudi firms

الملخص EN

This study aims to investigate the effectiveness of board composition and concentrated ownership in reducing agency cost among firms listed on the Saudi market over the period 2010-2012.

It employs two measures of agency cost: the ratio of assets utilization and operating expenses ratio.

By employing inductive approach, multivariate random effect regression is used to analyze the data.

Findings reveal that a higher percentage of ouLside directors seem to be effective in reducing agency cost.

Moreover, a laiger board and audit committee size serve the same role but.

frequent meetings by board directors, the existence of a nomination and remuneration committee and financial expertise in audit committee do not appear to protect the firm from agency cost.

The study also provides evidence that concentrated ownership including board ownership and family ownership reduce the level of agency cost while block holder ownership has no effect.

These results are consistent with agency theory, which predicts that a beneficial governance system and concentrated ownership mitigate agency cost.

This paper provides a fundamental contribution to the agency costs dehate by presenting new evidence from Saudi Arabia which has different characteristics in ownership structure.

These findings also could be helpful for Saudi regulators in their attempts to enhance the quality of monitoring mechanisms and reduce agency cost.

This study does not take endogeneity test in consideration.