Security Analysis, Agency Costs and UK Firm Characteristics
Cardiff University Business School (CARBS)
25 Pages Posted: 19 May 2001
Date Written: May 18, 2001
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: Suggested Citation