The Effect Of Media Coverage On Agency Cost

In modern company agency relationships exist because of the separation of the ownership and the management, and the agency relationships must bring agency cost. Since Jensen and Meckling (1976) use their research on the agency problem of modern company to present the classic definition of agency cost, agency cost became the focus of attention to numerous scholars. At the same time, with the development of the society media such as newspaper, television, Internet is playing a more and more important role in corporate governance. As the mediation of information transmission, the media can reduce the information asymmetry between enterprises and investors through exposing the enterprise behavior. The pressure from social opinions and government regulators’ attention force the enterprises to correct their irregularities. Thus the corporate governance can be perfect and the agency cost will be reduced.The paper selects the SSE A-share listed companies during 2009-2011 as research samples. It researches empirically the relationship between media and agency cost. The empirical results show that the increases of media coverage help to reduce the agency cost of company. In addition, quality of information disclosure, CEO duality, company size, asset-liability ratio, level of managerial share ownership and level of ultimate controller share ownership have certain influence on the agency cost of the company. On the basis of the study, the paper groups the companies which have different quality of information disclosure and whether CEO separates from chairman of directors. In the grouping samples further the paper studies the influence of media coverage on agency cost. Our study finds that:in the low quality of information disclosure samples, media coverage can more effectively reduce agency cost. In the high quality of information disclosure samples, the influence of media coverage on reducing the agency cost is not obvious. In the samples with the separation of board of directors and general manager, media coverage also can significantly reduce the agency cost. But in the samples of CEO duality, the influence is not obvious.In conclusion, we believe that the media coverage plays an important external role in the company’s governance. We can strengthen the external management function of the media and at the same time improve the internal governance mechanism for reducing agency cost and protecting the interests of investors.