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The Effect of Agency Costs on Firm Value: A Moderating Role of Female Commissioners
Abstract
The objective of this study is to empirically investigate the influence of agency costs on firm value moderated by female commissioner. Agency costs are proxied by asset turnover ratio, operating expense ratio, and administrative expense ratio, while firm value is proxied by return on assets and return on equity. The sample consists of non-financial companies listed on the Indonesia Stock Exchange during the period 2019-2021. Based on the sampling criteria, the total sample size is 286 firms, with a total of 858 observations. The results reveal that operating expense ratio and administrative expense ratio have a negative effect on firm value, while asset turnover ratio has a positive effect on firm value. Moreover, the findings indicate that female commissioner can positively moderate the linkage between two agency cost proxies (operating expense ratio and asset turnover ratio) and return on assets, as well as the relationship between three proxies of agency cost and return on equity. Incorporating the robustness tests, our results indicate that the presence of a female commissioner remains significant even during the Covid-19 pandemic, further supporting the main findings of the study. This highlights the consistent and significant role of female commissioners in strengthening the relationship between agency costs and firm value. These findings strongly support that the presence of women directors weakens the impact of agency costs and enhances firm value, and provide a suggestion for policymakers to consider implementing regulations regarding proportion of female commissioner in board composition.
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DOI: https://doi.org/10.26905/afr.v6i3.10590
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