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Managerial Ownership and Agency Conflicts: A Nonlinear Simultaneous Equation Analysis of Managerial Ownership, Risk Taking, Debt Policy, and Dividend Policy
Author(s) -
Chen Carl R.,
Steiner Thomas L.
Publication year - 1999
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1999.tb00448.x
Subject(s) - dividend policy , shareholder , dividend , agency (philosophy) , principal–agent problem , debt , agency cost , business , argument (complex analysis) , accounting , simultaneous equations model , control (management) , economics , monetary economics , finance , corporate governance , econometrics , philosophy , biochemistry , chemistry , epistemology , management
This paper uses a nonlinear simultaneous equation methodology to examine how managerial ownership relates to risk taking, debt policy, and dividend policy. The results have implications for our understanding of agency costs. We find risk to be a significant and positive determinant of the level of managerial ownership while managerial ownership is also a significant and positive determinant of the level of risk. The result supports the argument that managerial ownership helps to resolve the agency conflicts between external stockholders and managers but at the expense of exacerbating the agency conflict between stockholders and bondholders. We further observe evidence of substitution‐monitoring effects between managerial ownership and debt policy, between managerial ownership and dividend policy, and between managerial ownership and institutional ownership.