Corporate governance and agency cost of listed firms in Ghana

Abstract

Corporate governance has been emphasized in empirical literature and is now gaining roots in response to initiatives by some stakeholders such as the Ghana Institute of Directors. Therefore, this study sought to examine the effect of corporate governance on agency cost of listed companies on the Ghana Stock Exchange Market. A review of empirical literature shows that there exists a negative relationship between corporate governance and agency cost. The study was based on the positivism research philosophy and the quantitative research approach. The study employed the Hausman test and used the random effect models as the tool to analyse the data obtained. By employing 23 non- financial firms out of 41 firms listed on the GSE, the study found an inverse relationship between three corporate governance mechanisms (i.e., Board Size, Board Independence and Ownership Concentration) and agency cost. The study recommends that, to enhance the level of stakeholder confidence in the company and its management, the board size could be a mechanism to minimize agency cost. Also, board independence must be strengthened in order to reduce agency cost. Finally, large block shareholders should take the center stage in ensuring that agency cost is minimized.