The Effects of Product Market Competition on Agency Costs

Subject Areas : Financial Knowledge of Securities Analysis

امید پورحیدری ¹ (ندارد)
امیر سروستانی ² (مسئول مکاتبات)
رحمت اله هوشمند ³ (ندارد)

Received: 2012-06-21 Accepted : 2012-09-05 Published : 2013-03-10

Keywords: Product Market Competition, Agency cost, Free cash flow, assets turnover ratio,

Abstract :

In this paper , the effect of Product Market Competition on Agency Cost isinvestigated. In this regard, the effect of size is controlled. For measuring the ProductMarket Competition, the Herfindahl-Hirschman Index of sales and entry barriers is used.For measuring agency cost ,two criterion is used. The first criterion is the interaction ofthe firm’s growth prospects and its free cash flows. We used Tobin’s Q as a proxy for thefirm’s growth prospects. The other criterion is the assets turnover ratio.To test thehypotheses and data,multiple linear regression was used. findings of investigating 62firms in the 2003 to 2011 show that as the firm competition power increases and on theother hand the degree of the product market competition decreases, the agency cost wouldsignificantly increase. Moreover, the strength of the research results using annual datawere also exmined.