Agency problems and corporate governance mechanisms in Indian companies

Abstract

This research paper empirically examines the nature of relationship between agency cost and corporate governance mechanisms, and discusses the various internal and external corporate governance mechanisms that introduced to mitigate the agency problems in Indian companies. The descriptive statistics show that Indian companies are gradually moving towards compliance to the governance mechanisms. This research paper has utilized two alternative proxies for agency cost, Tobin’s Q and Free Cash Flow (FCF). The regression results on the proxy of agency cost (TOBIN’S Q) establish that the governance mechanisms are not viable corporate governance mechanisms. However, the findings prove that leverage and shareholders’ committees are the specific governance mechanisms, which mitigate the agency problems.