The Influence And Mechanism Of Subsidiary Managerial Ability On Dual Agency Costs

How to alleviate the dual agency problem is one of the urgent problems to be solved in corporate governance field.According to the upper echelons theory,the characteristics of subsidiary executives can affect the behavior of parent company and subsidiary.The existing research mainly focuses on the influence of managerial explicit characteristics on the company's decision-making behavior,ignoring the economic outcomes of managerial implicit characteristics,especially managerial ability.Managerial ability is the ability of executives controlling and using resources effectively and transforming them into firm value.It is closely related to firm growth and is an important guarantee to be a built-to-last firm.Can subsidiary managerial ability affect the dual agency costs?From the perspective of executive heterogeneity using unbalanced panel data of listed subsidiaries in China from 2008 to 2017.this paper empirically tests the influence and mechanism of subsidiary managerial ability on dual agency costs.The results show that:Firstly,subsidiary managerial ability has a significant inhibitory effect on dual agency costs.That is,the higher the subsidiary manager's ability,the lower the double agency cost;Secondly subsidiary managerial ability reduces the first kind of agency cost by improving executive shareholding level,and subsidiary managerial ability reduces the second kind of agency cost by improving the quality of internal control.Thirdly,in the expanded research,this paper groups samples by CEO career background and subsidiary popularity to compare the inhibitory effect of managerial abilities under different situation factors.The research shows that in the sample with CEO with rich career background and higher subsidiary popularity,managerial ability has a significant inhibitory effect on dual agency costs,while in the sample with CEO with single career background and lower subsidiary popularity,the inhibitory effect is not significant,which further reveals the boundary of subsidiary managerial ability on dual agency costs.This research has several theoretical and practical contributions.Firstly,from the perspective of executive heterogeneity,this paper tests the influence of subsidiary managerial ability on dual agency costs,providing a new perspective and approach to alleviate the dual agency problem under parent-subsidiary companies.Secondly,the research on the mechanism of managerial ability and dual agency costs reveals the mechanism of managerial characteristics on corporate behavior,enriches the research on the upper echelons theory,and provides feasible measures for firms to reduce dual agency costs.Finally,this paper studies the boundary of subsidiary managerial ability,which provides a useful method for firms to utilize managerial ability governance effects in Chinese context.