Ineffective implementation of corporate governance? A call for greater transparency to reduce agency cost

Abstract

This study uses a moderated‐mediation model to examine the conditional indirect effect of corporate governance on agency cost. Based on a sample of 155 firms during the period of 2013–2019, results of our study are consistent with agency cost hypothesis that managers and controlling shareholders make suboptimal investments when disclosure quality is less in firms. The findings of the study have implications for regulatory bodies responsible for ensuring the effective execution of corporate governance mechanisms. Likewise, in response to calls for additional control devices such as voluntary disclosures, it is important to set voluntary reporting standards.