Minority Investor Protection Mechanisms and Agency Costs: An Empirical Study Using the World Bank-Developed Approach

Minority investor protection mechanisms and agency costs: An empirical study using a World Bank–developed approach

Accounting ◽

10.5267/j.ac.2021.6.014 ◽

2022 ◽

Vol 8 (2) ◽

pp. 235-248 ◽

Cited By ~ 1

Author(s):

Hoang N. Pham ◽

Minh C. Nguyen

Keyword(s):

World Bank ◽

Agency Costs ◽

Investor Protection ◽

Agency Problems ◽

Minority Shareholders ◽

Firm Level ◽

The World Bank ◽

The World ◽

Protection Mechanisms ◽

The Impact

This study aims to examine the impact of minority investor protection mechanisms on agency costs. All relevant indicators of minority investor protection adapted from the World Bank’s annual ‘Doing Business’ reports, along with concentrated government ownership, are employed with a panel data sample of 135 Vietnamese listed firms during the period 2014–2018. It is found that the following mechanisms are effective in mitigating agency costs and hence agency problems at the firm level: 1) review and approval requirements for related-party transactions; 2) minority shareholders’ ability to sue and hold directors liable for their duties; 3) minority shareholders’ access to internal corporate documents; 4) investors’ rights to approve major corporate investment and sale of asset decisions; and 5) disclosure in annual reports of salaries, bonuses and other forms of remuneration to directors and management. Interestingly, board independence and controlling government shareholders are not confirmed to play significant roles in addressing agency problems. To the best of the authors’ knowledge, this is the first attempt at testing for the impact of minority investor protection mechanisms developed by the World Bank on agency costs at the firm level, hence providing empirical evidence for the adoption of the minority investor protection mechanisms promoted by the World Bank. This study also provides policy implications for selecting effective mechanisms to mitigate agency conflicts between controlling shareholders and minority investors in order to enhance the financial performance of firms in an Asian emerging market.

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Agency costs and credit availability: an international study

European Journal of Management and Business Economics ◽

10.1108/ejmbe-06-2020-0175 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Mejda Bahlous-Boldi

Keyword(s):

Stock Market ◽

World Bank ◽

Agency Costs ◽

Minority Rights ◽

Judicial System ◽

Content Type ◽

Rights Protection ◽

The World Bank ◽

The World

PurposeThis paper aims to investigate the link between agency costs mitigation via three levels of rights protection (minority rights protection, enforcing contracts, resolving insolvency issues) provides the propitious climate for financing investment opportunities around the world.Design/methodology/approachWe use Bartlett’s three-group method to stratify countries based on how well they protect investors as measured by the scores provided in the Doing Business dataset developed by the world bank for 189 countries. We then test a variety of independent hypotheses that the alleviation of agency costs via three levels of protection (minority investors’ rights, contract enforcement, resolving insolvency issues) is associated with better access to credit via the banking system, better valuation of listed firms via the stock market and higher investment and growth.FindingsOur findings support Agency Theory which explains why the absence of legal protection of external investors leads to stock markets and financial institutions failing to fulfill their role of financing the economy.Practical implicationsThe policy implication from this study indicates that countries ought to (1) develop legislation that protects investors’ rights, (2) improve the quality of their judicial system in terms of enforcing the legislation and (3) build the framework for resolving disputes during insolvency as these are important ingredients for a developed financial system.Originality/valueWe use the World bank dataset and a new methodology to quantify the significance of the relationship between minority rights protection, ineffective enforcement, lack of bankruptcy laws and access to firm financing via the banking sector and the stock market. It provides new evidence that the quality of the judicial system in a country matter for firms’ ability to raise financing and enhance value creation.

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