Agency cost determinants in family and non-family firms: a Malaysian Case

By using the agency theory, this study shed a light on examining the determinants of agency costs in family and non-family firms. In addition, this study examining whether family firms have lower agency costs and whether the determinants of agency costs will be dissimilar with non-family firms. The sample for this study comprised of 530 firms of family and non-family firms. The observation period was for five years from 2001 to 2005. The Ordinal Least Square was employed to determine the objectives of study. The measurement used for the agency costs was asset turnover. It was found that the determinants of agency costs were leverage, size and cash holding. In fact, the determinants were similar in both firms except for the leverage. Leverage was only significantly related to asset turnover in family firms. Nonetheless, by looking at the effects of the industry, it can be said that there were some differences among the family and non-family firms pertaining to the impact of agency costs. Apart from that, it was found that family firms did not have lower agency costs as compared to non-family firms. Hence, this study provides evidence that the determinants of agency costs in family and non-family firms are alike. Furthermore, the family's involvement in running the business cannot help in alleviating agency costs particularly in Malaysian context. Though previous evidences stressed that family firms had suffer lower agency costs, this study proved that Malaysian family firms did not suffered lower agency costs as compared to non-family firms. Nevertheless, this study has been able to prove that leverage, size and cash holdings were the strong determinants of the agency costs had a greater influence on the agency costs.
Keywords: agency costs, family firms, non-family firms, leverage, size, cash holdings.