Does management entrenchment explain agency costs of equity: Evidence from French firms

The purpose of this study is to examine the effect of the management entrenchment on the agency costs of equity. We conduct tests on 120 French companies over the period 2000-2014 in order to test the impact of the main factors that can intensify the conflicts between shareholders and managers. We use three alternative measures of agency costs of equity, namely asset utilization, operating expenses and administrative expenses. According to the empirical results, the CEO age, his dual role of executive and chairman, and the discrepancy between ownership and voting rights are relevant determinants of agency conflicts between shareholders and managers. Furthermore, we find that the manager’s seniority and his ownership constitute internal governance mechanisms for the French companies.