The Impact Of Board Characters And Ownership Structure On Agency Cost

In today's worldwide, there are two kinds of agency costs, the first kind of agency cost and the second kind of agency cost. The first kind of agency cost is related to the shareholders and the managers, and the second kind of agency cost is related to the major and minor shareholders. The framework of managers'agency cost popular in 1980s, the research object for American and British company system mode; The controlling shareholders agency cost framework was born in 1990s, applying the most corporate governance research of the equity concentration countries.Since Berle and Means (1932) put forward the "Separation of Corporate ownership and control" of this important proposition, the study of the conflict of interests between shareholders and managers has become a hot topic. Especially when Jensen and Meckling (1976) initiated the public's analysis of agency costs, the scholars extending their research by pivoting around the way that reduce agency costs, agency costs of measurement, agency costs and other factors. But with the continuous accumulation and in-depth study proceeding, theoretical basis, research focus and research methods, have subjected a series change, the research scholars believe that the focus of corporate governance should not be limited to the issues between shareholders and managers agency. More attention should be paid onto conflicts of interest between major and minor shareholders.In our county's listed company, the double agency costs exist at the same time. Ownership structure of listed companies in China generally show features of the "Big Stock", controlling shareholders control the company's core power, with its final decision on the financing preferred capital structure of listed companies, but also determines the controlling shareholder and minority shareholders, creditors, agent relations, corporate governance in different ways according to the financing structure can be divided into equity financing governance and management of two types of debt financing. Whether equity or debt management governance, which aims to protect the interests of investors are not subject to abuse, reduce agency costs, the company for efficient management.In China, because of historical reason, the government holds lots of the stock and has less control than institutional shareholder. Managers represent stockholders to run the company, but in government dominant companies, the managers usually have the power of control. Furthermore, the market of professional managers has not formed yet and the market for corporate control is not very active. In this case, the managers have more power of control than the position sends them, and increases moral hazard as well as agency costs. Compared to the total share, the ratio of outstanding share is low, so the minority shareholders have little constraint to the dominant shareholders. The dominant shareholders make all decisions about business, and leave minority shareholders' interest vulnerable. This phenomenon also boosts the agency costs.Unlike other country, in China the double agency costs turn up at the same time. But studies about this are still rare. Most research is on agency cost between managers and shareholders or on dominant shareholders and minority shareholders. Few of them combine the two kinds of agency costs. So, this article studies the board of directors and shareholding structure in the view of both kinds agency costs, to make the conclusion more real and explanatory.This paper chooses 5328 companies' data from the year of 2006 to 2009, that come from 12 industries (without financial industry) to do the research. It consists of two main parts, the first part is theoretical analysis, explaining how the board of directors and shareholding structure influence the two kinds of agency costs; the second part is empirical research. In this part, this paper use administrative expenses rate to measure the first kind of agency costs, the ASSO ratio to measure the second agency cost, and some control variables to balance the model. And the empirical result shows that, the management ownership of stock is negative to the two kinds of agency costs; and the chairman of the board also work as CEO is positive to the first kind of the first kind of agency costs; the number of the shareholders is positive to the two kinds of agency costs; and the independent directors ratio is irrelative to agency costs.The main conclusions are as follows:First, MSR has shown the effectiveness of good governance. MSR and agency costs show significant negative relationship, which enhanced the governance role of MSR. The results also show the company size and agency costs are negative correlated, which proves the existence of scale effects.Second, in the board of characters, the separation of chairman and CEO has no significant relationship with the second class of agency costs, but it has significant relationship with the first class of agency costs, indicating that the mechanism of independent directors in listed companies is not playing a good role in the agency costs of management practice as expected.Third, from the regression results, the number of shareholders has positive significant relationship with the second class of agency costs, and it is very significant. The number of shareholders has significant and positive relationship with the first class of agency costs. This means that, in general, the number of shareholders is positively related with agency costs, and the return of supervision decreases with the increase of the number of shareholders, and the free rider problem become worse with the increase of the number of shareholders. Overall, the debt in the corporate governance mechanism does not play a normal role in practice, its role is just in the opposite as expected. I think this may be due to the financing of China and Western countries in different ways, the performance of financing shows the anti-pecking order.Forth, the Concentration Ratio has always been important in the corporate governance researches. The results of this study show that the TOP1 in the proportion of the role of agency costs is in two different directions. With the increasing of TOP1,the first class of agency costs will decrease, while the second class of agency cost will increase. Besides, the Degree of Restriction only in the second class of agency costs plays a role as expected, it has a positive relation with the first class of agency costs.According to the conclusions, this paper put forward the following recommends:In the design of corporate governance and policy formulation,the company should establish an integrated strategic thinking of the two kinds of agency costs.Strengthen the corporate governance mechanism that can reduce agency costs. To improve the managers holding the company shares can make managers' interests and shareholder's utility function keep consistent, which can promote managers to improve the company's business performance. The expansion of the scale of the company on agency costs reduction exist positive meaning.Strengthen the board independence. Further establish and perfect the system of independent directors of the related laws and regulations, strengthen the independent director system construction on the company level, ensure that the board of directors plays a good role.As for the factors whose direction are hard to define, the listed company should gradually explore the optimal points in practice combined with the actual situation.Perfect the relevant legal system.This research innovation may reflect in two aspects. Combined with board characters and ownership structure to research the double agency costs in the same framework will be more close to reality. This paper is not through the company performance or enterprise value to research agency costs, it is in a direct way to measure agency costs. In addition, as the limited time, conditions as well as my ability to write this paper, there is still much to be desired in this paper, especially in the empirical research. And this is also the right direction for further research.