The Relationship between Agency Costs and Stock Mispricing with Emphasis on the Role of Intermediate Compensation of the Board

Document Type : Research Paper

Authors

Islamic Azad university of tabriz

Abstract

The purpose of this research is to investigate the relationship between agency costs and stock mispricing with emphasis on the role of intermediate compensation of the board in Tehran Stock Exchange. In order  to measure agency costs, the ranks sum of the eight criteria (Free Cash Flow, Operating Expense Ratio, Utilization Assets Ratio, Non-Executive Ratio, Institutional Ownership, Product Market Competition, Earnings forecast Error and Earnings Forecast Dispersion by management) were used and to measure Stock Mispricing, Pantzalis and Park`s (2013) ranks sum of the five index (Stock Price to Intrinsic Value Ratio, Capital to its imputed value Ratio, Firm Fundamental Value, Market-to-Book Ratio and Abnormal Stock Return) was used. This research is applied in purpose and correlational as descriptive. The research statistical sample includes companies listed in Tehran Stock Exchange that among these, 106 corporate from 11 different industries as samples were selected based on systematic elimination sampling. The period research is 4-year between the years 2009 to 2012, but some of the financial years 2008 and 2013 were also used to measure some of the variables of the study. The results show that there is no relationship between agency costs and stock mispricing and also compensation of the Board does not affect the relationship between agency costs and stock mispricing. Thus, Agency Costs associated with Stock Mispricing does not play any role given the importance of the Compensation of the Board in Iran Stock Exchange and is considered as a completely-ineffective mechanism.

Keywords

References

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History

  • Receive Date: 13 September 2015
  • Revise Date: 14 February 2016
  • Accept Date: 22 August 2016

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