The study of the effect of market competition on agency costs

Abstract

In the present study, the effect of market competition on the agency costs was examined in the companies listed in Tehran stock exchange. For this purpose, 56 companies were examined in 2005–2010. The selected approach benefits from Panel Data to test the hypotheses and the natural logarithm of auditing fees and operational costs ratio were considered for calculating the agency costs. The findings indicated that there was a significant relationship between the competition effect in the product market and agency costs when the confidence rate is 95 percent; also the findings indicate that the debt rate has no significant effect on the agency costs. However, the stated findings indicated there was a negative and significant relation between the competition in the product market and agency costs because of directional control. In comparison as mentioned in the review history other writers such as Weetman et al. (2011) and Gul et al. (1998) assessed the auditing fees as the agency costs scale and their findings were in harmonization with the findings from next study and Gal-Or (2007) observed a reverse relation in the findings and Baggs and De Bettignies (2007) concluded that there was no relation between the competition in the product market and agency costs. Therefore, the study hypothesis was accepted. Therefore, we conclude that the competitive pressures in the product market decrease the auditing wags as an agency cost and then the shareholders decrease the costs concerning supervising agencies. The findings from examining the model variables coefficients indicate that there was a significant and positive relation between the ratio of auditing organization concentration and operational costs efficiency; in other words, when the competition increases between the companies in the product market the ratio of operational costs to the sale increases in the companies. Also, the company size and the ratio of short–term debt to the long–term one has no significant effect on the ratio of operational costs to the sale.