NDLI: The effects of managerial discretion on moral hazard related behaviour: German evidence on agency costs

Content Provider	Springer Nature Link
Author	Engelen, Christian
Copyright Year	2014
Abstract	Based on a sample of German quoted firms in the period 2006–2010 this paper measures the impact of managerial incentives, entrenchment and blockholder monitoring on managerial behaviour typically associated with moral hazard. This is motivated by the observation that while typically the German institutional environment is characterised by the type-II conflict between large and dispersed investors, a number of regulatory and behavioural changes suggest that the issue of managerial leeway and complacency has gained in importance. I find that managerial entrenchment as proxied by excess compensation is associated with higher agency costs, i.e. lower asset turnover and higher discretionary expense ratio and acquisition activity, respectively. In contrast, there is no evidence of an incentive alignment effect of long-term compensation components. Concerning blockholder influence, while general blockholder presence has inconclusive effects, the presence of a blockholder belonging to the traditionally influential group of families, strategic investors and banks is significantly associated with lower agency costs. However, the presence of any other blockholder is associated with higher agency costs stemming from managerial discretion. Overall, this partly conforms to the hypothesis that German corporate governance may be changing in that the problem of managerial complacency and entrenchment has gained in importance; at the same time dominant blockholders still seem to exert influence on corporate policy.
Starting Page	927
Ending Page	960
Page Count	34
File Format	PDF
ISSN	13853457
Journal	Journal of Management and Governance
Volume Number	19
Issue Number	4
e-ISSN	1572963X
Language	English
Publisher	Springer US
Publisher Date	2014-08-13
Publisher Place	New York
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Agency costs Compensation Corporate governance Ownership Management/Business for Professionals Accounting/Auditing Industrial Organization Sociology
Content Type	Text
Resource Type	Article
Subject	Business and International Management

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