Simulation of Agency Costs of Manager-Owner Using the System Dynamics Approach: Study of Shiraz Petrochemicals

Document Type : Research Paper

Authors

1 Professor of accounting, Shiraz university, Shiraz, Iran

2 Assistant Professor of Accounting, Khalij University, Business and Economics department, Boshehr, Iran

Abstract

The purpose of this study is presentation of an agency cost model and simulation of these costs for Shiraz Petrochemical Company in a 100-month period.  In order to develop an agency cost model, firstly, using the historical recognition method in the framework of library studies, we extract the variables, mechanisms and relations existing between them. Then, a general and practical model is presented to simulate the agency costs of manager-owner for Shiraz Petrochemical Company using the software Vensim DSS. With the implementation of the developed model, it is found that the company's agency costs would increase over a period of 100 months. Therefore, several policies are introduced to reduce costs. These policies include the manager’s ownership of the stock (as a bonus) , an increase in the debt and the board efficiency. The results show that each of these policies, alone and in combination, can significantly reduce the agency costs. Introducing a systemic attitude in the field of accounting research, specifically the agency costs of manager-owner is innovation in this research. 

Keywords


احمد پور، احمد؛ پاکدلان، سعید. (1393). نقش فرصت­های رشد در تعدیل رابطه اهرم مالی و تصمیمات سرمایه­گذاری، پژوهش­های تجربی حسابداری، 3 (11)، 15-31.
اعتمادی، حسین؛ اسمعیلی کجانی، محمد. (1396). رابطه سود تقسیمی با فرصت­های رشد و هزینه­های نمایندگی. پژوهش­های حسابداری مالی و حسابرسی، 9‌ (34)، 85-111.
برادران حسن زاده، رسول؛ تقی زاده خانقاه، وحید. (1395). تأثیر هزینه­ای نمایندگی بر رفتار سرمایه­گذاری. پژوهش­های حسابداری مالی و حسابرسی، 8 (32)، 163-139.
بهرامی، آرش؛ یادگارزاده، غلامرضا؛ پرند، کوروش. (1386). تعیین خط مشی­ها و عوامل اثرگذار در ارزشیابی درونی گروه‌های آموزشی: رویکردی بر اساس پویایی سیستم. پژوهش و برنامه‏ریزی در آموزش عالی، 13 (44)، 49-84.
حساس یگانه، یحیی. (1395). تأثیر سازوکارهای حاکمیت شرکتی بر کیفیت حسابرسی و مدیریت سود واقعی. پژوهش­های تجربی حسابداری، 5 (20)، 45-23.
حیدری، مهدی؛ قادری، بهمن؛ کفعمی، مهدی. (1395). بررسی تأثیر راهبری شرکتی در تقلیل هزینه­های نمایندگی: رویکرد مدل­سازی معادلات ساختاری، پژوهش­های حسابداری مالی، 2 (28)، 101-124.
خواجوی، شکراله؛ محمدیان، محمد. (1397). الگوی مفهومی حسابداری شهروندی مبتنی بر تفکر انتقادی، حسابداری مدیریت، 11 (37)، 106-97.
دیانتی دیلمی، زهرا؛ بیاتی، ‌مرتضی. (1394). رابطه رقابت بازار محصول و حق الزحمه حسابرس مستقل. پژوهش­های حسابداری مالی و حسابرسی، 7 (27)، 23-38.
رضاییان، علی. (1383). تجزیه و تحلیل سیستم­ها. تهران: سمت
ستایش، محمد حسین؛ محمدیان، محمد؛ مهتری، ‌زینب. (1394). بررسی اثر تعاملی کیفیت اطلاعات حسابداری و عدم تقارن اطلاعاتی بر عدم کفایت سرمایه­گذاری شرکت­های پذیرفته شده در بورس اوراق بهادار تهران. پیشرفت­های حسابداری، 3 (68)، 77-106.
عبدی، رسول؛ زینالی، مهدی؛ تقی زاده خانقاه، وحید. (1396). تأثیر مالکیت مدیریتی بر رابطه بین جریان­های نقد آزاد و ناکارایی سرمایه­گذاری. پژوهش­های حسابداری مالی و حسابرسی، 9 (35)، 185-157.
غیوری مقدم، علی؛ حاجب، حمید رضا. (1394). تأثیر ساختار سرمایه بر کارایی سود شرکت­های پذیرفته شده صنعت خودرو و ساخت قطعات بورس اوراق بهادار تهران، مدیریت دارایی و تأمین مالی، 1 (8)، ‌91 -106.
محمدی، علی؛ خلیفه، مجتبی؛ عباسی، عباس؛ علی محمدلو، مسلم؛ اقتصادی فرد، محمود. (1396). طراحی زنجیره تأمین با رویکرد یکپارچه­سازی مالی و عملیاتی. چشم­انداز مدیریت، 7 (26)، 168-139.
مصلح‏شیرازی، علی نقی؛ خلیفه، مجتبی. (1396). شبیه‏سازی و سیاست‏گذاری درونی و بیرونی مشکلات تامین مالی SMEها با رویکرد پویایی‏شناسی سیستمی. مدیریت دارایی و تامین مالی، 5 (17)، 62-92.
موسوی حقیقی، محمد هاشم؛ ستوده، فیروزه. (1392). شبیه سازی الگوی پویای رفتاری سهام در بورس اوراق بهادار تهران. مطالعات مدیریت راهبردی، 4 (14)، 52-35.
Abad, D. , Lucas-Pérez, M. E. , Minguez-Vera, A. , & Yagüe, J. (2017). Does gender diversity on corporate boards reduce information asymmetry in equity markets?. BRQ Business Research Quarterly20 (3) , 192-205.
Abdi, R. ; Zeinali, M. & Taghizadeh Khaneghah, V. (1396). The Impact of Management Ownership on the Relationship between Free Cash Flows and Investment Inefficiency. Financial Accounting and Auditing Researches, 9 (35) , 185-157. (in Persian)
Anderson, R. C. , Mansi, S. A. , & Reeb, D. M. (2004). Board characteristics, accounting report integrity, and the cost of debt. Journal of accounting and economics, 37 (3) , 315-342.
Agrawal, A. , & Knoeber, C. R. (1996). Firm performance and mechanisms to control agency problems between managers and shareholders. Journal of financial and quantitative analysis31 (3) , 377-397.
Ahmad Pour, A. & Pakdelan, S. (2016). The role of growth opportunities in moderating the relationship between financial leverage and investment decisions. empirical accounting research, 3 (11) , 15-31. (in persian)
Ashbaugh-Skaife, H. , Collins, D. W. , & LaFond, R. (2006). The effects of corporate governance on firms’ credit ratings. Journal of accounting and economics42 (1-2) , 203-243.
Atanassov, J. (2013). Do hostile takeovers stifle innovation? Evidence from antitakeover legislation and corporate patenting. The Journal of Finance68 (3) , 1097-1131.
Bahrami, A,. Yadegarzadeh, Gh,. & Parand, K. (2007). Determining policies and factors affecting the internal evaluation of educational groups: an approach based on the dynamics of the system. Research and planning in higher education,13 (44) , 49-84. (in persian)
Baggs, J. , & De Bettignies, J. E. (2007). Product market competition and agency costs. The Journal of Industrial Economics55 (2) , 289-323.
Belghitar, Y. , & Clark, E. (2015). Managerial risk incentives and investment related agency costs. International Review of Financial Analysis,10 (38) , 191-197.
Berger, A. N. , & Di Patti, E. B. (2006). Capital structure and firm performance: A new approach to testing agency theory and an application to the banking industry. Journal of Banking & Finance30 (4) , 1065-1102.
Berger, P. G. , Ofek, E. , & Yermack, D. L. (1997). Managerial entrenchment and capital structure decisions. The journal of finance52 (4) , 1411-1438.
Bettignies, J. E. , & Ross, T. W. (2013). Mergers, Agency Costs, and Social Welfare. The Journal of Law, Economics, and Organization30 (2) , 401-436.
Bilal, Chen, S. , & Komal, B. (2018). Audit committee financial expertise and earnings quality: A meta-analysis. Journal of Business Research, 17 (84) , 253-270.
Bradaran E Hassanzadeh, R. & Taqizadeh Khaneghah, V. (2016). The Effect of Agency Costs on Investment Behavior. Financial Accounting and Auditing Researches, 8 (32) , 163-139. (in Persian)
Brush, T. H. , Bromiley, P. , & Hendrickx, M. (2000). The free cash flow hypothesis for sales growth and firm performance. Strategic Management Journal,11 (21) , 455-472.
Byrd, J. W. , & Hickman, K. A. (1992). Do outside directors monitor managers?: Evidence from tender offer bids. Journal of financial economics32 (2) , 195-221.
Cai, C. X. , Hillier, D. , Tian, G. , & Wu, Q. (2015). Do audit committees reduce the agency costs of ownership structure?. Pacific-Basin Finance Journal35, 225-240.
Chen, X. , Sun, Y. , & Xu, X. (2016). Free cash flow, over-investment and corporate governance in China. Pacific-Basin Finance Journal, 10 (37) , 81-103.
Chou, J. , Ng, L. , Sibilkov, V. , & Wang, Q. (2011). Product market competition and corporate governance. Review of Development Finance1 (2) , 114-130.
Chou, W. H. , Hardin, W. G. , Hill, M. D. , & Kelly, G. W. (2013). Dividends, values and agency costs in REITs. The Journal of Real Estate Finance and Economics46 (1) , 91-114.
Chuang, L. , Xiuhong, L. , & Lei, Z. (2010). Notice of Retraction Earnings Quality and the Agency Costs of Controlling Shareholder. E-Business and E-Government (ICEE) , International Conference on, 5132-5135.
Cornelli, F. , Kominek, Z. , & Ljungqvist, A. (2013). Monitoring managers: Does it matter?. The Journal of Finance68 (2) , 431-481.
Datta, D. , Ganguli, S. K. , & Chaturvedi, M. (2014). Announcement Effect of Dividend in Presence of Dividend Tax: Possible Agency Problem and Macro Level Inefficiency?. South Asian Journal of Macroeconomics and Public Finance3 (2) , 195-220.
Dey, A. (2008). Corporate governance and agency conflicts. Journal of accounting research46 (5) , 1143-1181.
Dianati Daylami, Z. & Bayati, M. (2015). Relationship between product market competition and independent auditor fees. Financial Accounting and Audit Researches, 7 (27) , 23-38. (in Persian)
D’Mello, R. , & Miranda, M. (2010). Long-term debt and overinvestment agency problem. Journal of Banking & Finance34 (2) , 324-335.
Doukas, J. A. , Kim, C. , & Pantzalis, C. (2000). Security analysis, agency costs, and company characteristics. Financial Analysts Journal, 56 (6) , 54-63.
Doukas, J. A. , McKnight, P. J. , & Pantzalis, C. (2005). Security analysis, agency costs, and UK firm characteristics. International Review of Financial Analysis, 14 (5) , 493-507.
Elaoud, A. , & Jarboui, A. (2017). Auditor specialization, accounting information quality and investment efficiency. Research in International Business and Finance, 11 (42) , 616-629.
Etemadi, H. & Esmaeili Kojani, M. (2017). The relation of dividend with growth opportunities and agency costs. Financial and Auditing Accounting Research, 9 (34) , 85-111. (in Persian)
Fama, E. F. (1980). Agency problems and the theory of the firm. Journal of political economy88 (2) , 288-307.
Fama, E. F. , & French, K. R. (2001). Disappearing dividends: changing firm characteristics or lower propensity to pay?. Journal of Financial economics60 (1) , 3-43.
Ferris, S. P. , Kumar, R. , & Sarin, A. (1995). The role of corporate groupings in controlling agency conflicts: The case of keiretsu. Pacific-Basin Finance Journal3 (2-3) , 319-335.
Florackis, C. , & Ozkan, A. (2009). Managerial incentives and corporate leverage: evidence from the United Kingdom. Accounting & Finance49 (3) , 531-553.
Fosu, S. , Danso, A. , Ahmad, W. , & Coffie, W. (2016). Information asymmetry, leverage and firm value: Do crisis and growth matter?. International Review of Financial Analysis, 46, 140-150.
Fung, S. , Jo, H. , & Tsai, S. C. (2009). Agency problems in stock market-driven acquisitions. Review of Accounting and Finance8 (4) , 388-430.
Garvey, G. (1992). Do concentrated shareholdings mitigate the agency problem of “free cash flow”? Some evidence. International Review of Economics & Finance1 (4) , 347-369.
Ghayouri Moghaddam, A. and Hajib, H. R. (1394). Effect of Capital Structure on Profit Efficiency of Accepted Companies in Automobile Industry of Tehran Stock Exchange, Asset Management and Financing, 1 (8) , 91-106. (in Persian)
Gormley, T. A. , & Matsa, D. A. (2016). Playing it safe? Managerial preferences, risk, and agency conflicts. Journal of Financial Economics122 (3) , 431-455.
Griffin, P. A. , Lont, D. H. , & Sun, Y. (2010). Agency problems and audit fees: further tests of the free cash flow hypothesis. Accounting & Finance50 (2) , 321-350.
Hadlock, C. J. (1998). Ownership, liquidity, and investment. The Rand Journal of Economics, 3 (29) , 487-508.
Harvey, C. R. , Lins, K. V. , & Roper, A. H. (2004). The effect of capital structure when expected agency costs are extreme. Journal of Financial Economics, 74 (1) , 3-30.
Harvey, K. D. , & Shrieves, R. E. (2001). Executive compensation structure and corporate governance choices. Journal of Financial Research24 (4) , 495-512.
Hasas yegane, y. (2016). Effect of corporate governance mechanisms on audit quality and earning management. Empirical Accounting Research, 5 (20) , 23-45. (in Persian)
He, W. P. , Lepone, A. , & Leung, H. (2013). Information asymmetry and the cost of equity capital. International Review of Economics & Finance, 7 (27) , 611-620.
Heydari, M. , Ghaderi, B. & kafaami, M. (2016). Investigating the Effect of Corporate Governance on Reducing the Agency Cost: A Structural Equation Modeling Approach. Financial Accounting Researches, 2 (28) , 101-124. (in Persian)
Hope, O. K. , Langli, J. C. , & Thomas, W. B. (2012). Agency conflicts and auditing in private firms. Accounting, Organizations and Society37 (7) , 500-517.
Huang, W. , & Paul, D. L. (2017). Institutional holdings, investment opportunities and dividend policy. The Quarterly Review of Economics and Finance16 (64) , 152-161.
Iatridis, G. E. (2012). Audit quality in common-law and code-law emerging markets: evidence on earnings conservatism, agency costs and cost of equity. Emerging Markets Review13 (2) , 101-117.
Iona, A. , & Leonida, L. (2016). Suboptimal financial policies and executive ownership in the UK: evidence from a pre-crisis. Corporate Governance: The International Journal of Business in Society16 (1) , 187-210.
Jelinek, K. , & Stuerke, P. S. (2009). The nonlinear relation between agency costs and managerial equity ownership: Evidence of decreasing benefits of increasing ownership. International Journal of Managerial Finance5 (2) , 156-178.
Jensen, G. R. , Solberg, D. P. , & Zorn, T. S. (1992). Simultaneous determination of insider ownership, debt, and dividend policies. Journal of Financial and Quantitative analysis27 (2) , 247-263.
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review76 (2) , 323-329.
Jensen, M. C. , & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics3 (4) , 305-360.
Jensen, M. C. , & Ruback, R. S. (1983). The market for corporate control: The scientific evidence. Journal of Financial economics11 (1-4) , 5-50.
Jurkus, A. F. , Park, J. C. , & Woodard, L. S. (2011). Women in top management and agency costs. Journal of Business Research64 (2) , 180-186.
Kashefi Pour, E. , & Khansalar, E. (2015). Does debt capacity matter in the choice of debt in reducing the underinvestment problem?. Research in International Business and Finance8 (34) , 251-264.
Khajavi, sh. , & Mohamadiyan, M. (2018). Conceptual model of citizenship accounting based on critical thinking. Management Accounting, 11 (37) , 97-107. (in Persian)
Ko, H. C. A. , Tong, Y. J. , Zhang, F. F. , & Zheng, G. (2016). Corporate governance, product market competition and managerial incentives: Evidence from four Pacific Basin countries. Pacific-Basin Finance Journal10 (40) , 491-502.
Kouaib, A. , & Jarboui, A. (2014). External audit quality and ownership structure: interaction and impact on earnings management of industrial and commercial Tunisian sectors. Journal of Economics Finance and Administrative Science19 (37) , 78-89.
Makina, D. , & Wale, L. E. (2016). The source of investment cash flow sensitivity in manufacturing firms: is it asymmetric information or agency costs?. South African Journal of Economic and Management Sciences19 (3) , 388-399.
McKnight, P. J. , & Weir, C. (2009). Agency costs, corporate governance mechanisms and ownership structure in large UK publicly quoted companies: A panel data analysis. The quarterly review of economics and finance49 (2) , 139-158.
Mohamadi, A. , Khalifeh, M. , Abasi, A. , Alimohamadlo, M. , & Eghtesadi fard, M. (2017). Supply chain design with a financial and operational integration approach. Management perspective, 7 (26) , 139-168. (in Persian)
Mosleh shirazi, AN. , & Khalifeh, M. (2017). Internal and external simulation and policy-making of financing problems of SMEs with a systemic dynamical approach. Asset management and financing, 5 (17) , 62-92. (in persian)
Musavi haghighi, MH. , & Setodeh, F. (2013). Simulation of dynamic behavioral pattern of stock in Tehran Stock Exchange. Strategic Management Studies, 4 (14) , 35-52. (in Persian)
Myers, S. C. (1977). Determinants of corporate borrowing. Journal of financial economics5 (2) , 147-175.
Myers, S. C. , & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics13 (2) , 187-221.
Namazi, M. , & Rezaei, G. (2016). The Effects of Earnings Quality Criteria on the Agency Costs: (Evidence from Tehran Stock Exchange Market). Procedia-Social and Behavioral Sciences, 58 (230) , 67-75.
Officer, M. S. (2011). Overinvestment, corporate governance, and dividend initiations. Journal of Corporate Finance17 (3) , 710-724.
Ortiz-Molina, H. (2006). Top management incentives and the pricing of corporate public debt. Journal of Financial and Quantitative Analysis41 (2) , 317-340.
Owusu, A. , & Weir, C. (2018). Agency costs, ownership structure and corporate governance mechanisms in Ghana. International Journal of Accounting, Auditing and Performance Evaluation14 (1) , 63-84.
Ping, T. , & Jie-qiong, H. (2012). Empirical study on board characteristics and agency costs. Management Science and Engineering (ICMSE) , 2012 International Conference on, 1509-1516.
Poretti, C. , Schatt, A. , & Bruynseels, L. (2018). Audit committees’ independence and the information content of earnings announcements in Western Europe. Journal of Accounting Literature10 (40) , 29-53.
Qi, B. , Li, L. , Zhou, Q. , & Sun, J. (2017). Does internal control over financial reporting really alleviate agency conflicts?. Accounting & Finance57 (4) , 1101-1125.
Rezaeian, A. (2004). System analysis. Tehran: Samt. (in persian).
Scharfstein, D. (1988). The disciplinary role of takeovers. The Review of Economic Studies55 (2) , 185-199.
Schmidt, K. M. (1997). Managerial incentives and product market competition. The Review of Economic Studies64 (2) , 191-213.
Setayesh, M. H. , Mohammadian, M. & Mehtari, Z. (2015). Investigating the Interactive Effect of Accounting Information Quality and Information Asymmetry on the Inadequacy of Investment in Accepted Companies in Tehran Stock Exchange. Accounting Advances3 (68) , 77-106. (in Persian)
Shleifer, A. , & Vishny, R. W. (1989). Management entrenchment: The case of manager-specific investments. Journal of financial economics25 (1) , 123-139.
Stulz, R. (1988). Managerial control of voting rights: Financing policies and the market for corporate control. Journal of financial Economics, 5 (20) , 25-54.
Sun, J. , Ding, L. , Guo, J. M. , & Li, Y. (2016). Ownership, capital structure and financing decision: evidence from the UK. The British Accounting Review48 (4) , 448-463.
Tang, Y. (2018). When does competition mitigate agency problems?. Journal of Corporate Finance. ACCEPTED MANUSCRIPT
Wu, C. C. , Lin, B. H. , & Yang, T. H. (2016). How do Agency Problems Affect the Implied Cost of Capital?. Journal of Reviews on Global Economics2 (5) , 210-226.
Zalata, A. M. , Tauringana, V. , & Tingbani, I. (2018). Audit committee financial expertise, gender, and earnings management: Does gender of the financial expert matter?. International Review of Financial Analysis14 (55) , 170-183.