Ownership Composition and Agency Cost: An Empirical Analysis of Listed Non-Financial Firms in Nigeria

Abstract

The agency problem remains a prominent issue in modern corporations and continues to attract significant attention in corporate finance and governance research. It arises from the potential misalignment between the interests of principals (owners/shareholders) and agents (managers), which can lead to decisions that do not maximize shareholder value. This study examines the effect of ownership composition on agency cost among listed non-financial firms in Nigeria, drawing on agency theory as its theoretical framework. Using an ex post facto research design, data were obtained from the audited annual reports of 78 sampled firms across diverse sectors of the Nigerian Exchange Group (NGX) over a ten-year period (2014–2023). Panel regression analysis was employed to assess the relationship between agency cost and ownership variables specifically managerial ownership and ownership concentration while controlling for firm size, leverage, and profitability. The results reveal that ownership concentration has a significant negative effect on agency cost, Conversely, managerial ownership shows an insignificant relationship with agency cost. Based on the findings, the study recommends that the regulators and corporate governance stakeholders should promote ownership structures that allow for effective oversight by major shareholders without compromising minority interest rights. Although managerial ownership was found to be insignificant, firms should consider refining equity-based incentives to better align management interests with those of shareholders.