Security Analysis, Agency Costs and UK Firm Characteristics

Cardiff University Business School (CARBS)

25 Pages Posted: 19 May 2001

See all articles by John A. Doukas

John A. Doukas

Old Dominion University - Strome College of Business

Christos Pantzalis

University of South Florida

Phillip J. McKnight

University of St. Andrews - School of Management

Date Written: May 18, 2001

Abstract

In this paper we examine the monitoring activity of security analysis from the manager-shareholder conflict perspective. Using a unique data set of more than 400 UK firms tracked by security analysts over the 1999-2000 period, our preliminary evidence supports the view that security analysis acts as a monitoring mechanism in reducing agency costs for the three measures of agency costs employed by this paper. More importantly, we also find that security analysts are more effective in reducing managerial non-value maximising behaviour for smaller firms than for larger firms supporting the supposition that as firms grow in size and become more complex, the monitoring activity of security analysis becomes less effective. In addition, we find that security analysis has a positive and significant impact on firm value for smaller as opposed to larger firms.

Keywords: Security analysts; Agency costs, Firm value, United Kingdom UK

JEL Classification: G29, G12, D23

Suggested Citation

Doukas, John A. and Pantzalis, Christos and McKnight, Phillip J., Security Analysis, Agency Costs and UK Firm Characteristics (May 18, 2001). Cardiff University Business School (CARBS), Available at SSRN: https://ssrn.com/abstract=270420 or http://dx.doi.org/10.2139/ssrn.270420

John A. Doukas

Old Dominion University - Strome College of Business ( email )

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United States
757-683-5521 (Phone)

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Christos Pantzalis

University of South Florida ( email )

Tampa, FL 33620-5500
United States
(813) 974-3262 (Phone)

Phillip J. McKnight (Contact Author)

University of St. Andrews - School of Management ( email )

The Gateway
Gateway
St. Andrews, Fife KY16 9SS
United Kingdom

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