Empirical Study On The Effect Of Managerial Entrenchment To Agency Cost

With the separation of ownership and management, the problem that the interests' target between shareholders and managers is Inconsistent has emerged, giving rise to agency problems. Domestic and foreign scholars started to study this problem earlier, but mostly based on moral hazard and adverse selection as explained the basis for the manager's self-serving behavior, ignoring the effect of managerial entrenchment to agency cost. What's more, domestic scholars find that our country's managerial entrenchment is more and more serious. So, it's valuable to research the effect of managerial entrenchment to agency cost.By combing the existing literature of managerial entrenchment, I select four aspects'indicators of managerial entrenchment's influencing factor. Creating two linear models test the effect of managerial entrenchment's influencing factor to agency cost. At last, I obtain following conclusions:(1) Executive compensation within a certain range of managers has incentives. However, beyond this range, the pay's great temptation make managers have strong motivations to do managerial entrenchment, the agency costs is big. (2) It is serious that our country's managers don't hold any shares. And managers generally hold low scale of shares. (3) In the company that chairman and CEO is separated or the nature of the largest shareholders equity is non-state or ownership concentration is large, the board supervises manager efficiently, so the degree of managerial entrenchment is low, the angency cost is small. (4) Highly educated managers re-employment's capable is great, so they have weak motivations to do managerial entrenchment, the angency cost is small. (5) The majority of companies'proportion of independent directors is bigger than 1/3. But because of inadequate system of independent directors, the effect of propotion of independent directors to agency is not significant. (6) The boad size between 9-12 is the best. In these companies, the agency cost is smallest. (7) The product market and control market of our country are imperfect, so the external control mechanisms lose the constraints to managers.