Does managerial ownership reduce agency cost in Taiwan? A panel threshold regression analysis

Abstract

Two agency theories have dominated the corporate ownership debate, the convergence of interest and the entrenchment hypothesis. Following the work of Ang et al. (2000) and Sing and Davidson (2003) to a panel of 266 Taiwanese listed companies for the 1996-2006 period, we adopt an advanced panel threshold regression model to determine whether managerial ownership reduces agency costs. We find when managerial ownership is less than 36.55% or greater than 59.06%, consistent with the entrenchment hypothesis, a 1% increase in the managerial ownership decreases asset utilization efficiency by 0.32% and 0.5%, respectively. However, managerial ownership is between 51.35% and 59.06%, consistent with the convergence of interest hypothesis, a 1% increase in the managerial ownership increases asset utilization efficiency by 0.21%.