Agency Costs and the Power of “Apply and Explain” from South Africa

Abstract

This paper examines whether corporate governance mechanisms and the presence of institutional investors in South African publicly listed firms impact agency costs. Our findings show that large board size has harmful effects on agency costs; board independence allays agency costs. It is vital to distinguish institutional investors by investment objective and their monitoring ability to reduce agency costs. Results show that while institutional investors have taken as a homogenous group appeared to play an important governance role in allaying agency problems, pressure-insensitive investors can exert more influence in agency-related issues. Results have policy implications on the monitoring abilities of Independent Non-Executive Directors and institutional investors in South Africa.