Agency cost, corporate governance and ownership structure: the case of Pakistan

The article attempts to investigate the role of ownership structure and corporate governance in mitigating agency cost in a sample of 50 firms selected on the basis of market capitalization from “Karachi Stock Exchange” during the period 2003 to 2006. We used the proxy asset utilisation ratio to measure agency cost. Multivariate fixed effect regression is used to analyze the data. The explanatory variables include director ownership, institutional ownership, external ownership, board size, CEO/Chair duality, remuneration structure and board independence. The results show that higher director and institutional ownership reduces the level of agency cost. Smaller sized boards also results in lowering agency cost. Board independence has positive association with asset utilisation ratio. The separation of the post of CEO and chairperson and higher remuneration lower agency cost.