The Role Security Analysts in Reducing Agency Costs in Companies Listed on the Kuala Lumpur Stock Exchange

The objective of this dissertation was to examine whether the monitoring activity performed by security analysts in Malaysia is a positive function of the level of potential agency costs in companies. This objective was based on Jensen and Meckling's proposition (1976) that security analysis p...

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Main Author:	Ahmad Rizal, Mazlan
Format:	Thesis
Language:	eng
Published:	2003
Subjects:	HG Finance
Online Access:	https://etd.uum.edu.my/948/1/AHMAD_RIZAL_B._MAZLAN.pdf
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id	my-uum-etd.948
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spelling	my-uum-etd.9482023-01-05T03:06:55Z The Role Security Analysts in Reducing Agency Costs in Companies Listed on the Kuala Lumpur Stock Exchange 2003 Ahmad Rizal, Mazlan Sekolah Siswazah Graduate School HG Finance The objective of this dissertation was to examine whether the monitoring activity performed by security analysts in Malaysia is a positive function of the level of potential agency costs in companies. This objective was based on Jensen and Meckling's proposition (1976) that security analysis performed by analysts functions as an external monitoring device in terms of reducing agency costs. Therefore, when the potential agency-related problems in a company are great, analyst research activity should be greater than when potential agency-related costs in a company are low. Based on previous studies, seven determining variables were selected as proxies for agency costs, with the number of analysts following a company (NAF) was selected as the dependent variable. SIZE, GROWTH and EXPENSE were expected to be positively related with NAF, while INSIDER, DEBTRATIO, INSTITUTION and EFFICIENCY were hypothesized to be negatively related to NAF. Using a sample of 105 companies that were included in the International Brokerage Estimates Services (IBES) earnings forecast database published in The Edge as at January 2002, a multiple regression model that was similar to that of Moyer et. al. (1989) was used to explain the amount of security analysis monitoring of individual companies. A relatively high correlation (-0.339) was recorded between GROWTH and EXPENSE. However, a subsidiary auxiliary regression performed for GROWTH against the rest of the independent variables and EXPENSE against the rest of the explanators produced R2 figures that were relatively smaller than the overall R2 of the model. This rejected a multicollineariy problem among the determining variables in the model. For the multiple regressions using enter procedure method, the results produced an R2 of 60.4% with an F-value of 23.697 and a probability of 0.000. Among the independent variables, only INSTITUTION and SIZE were statistically significant at alpha = 0.05. Next, when a stepwise regression was conducted, the results indicated that the adjusted R2 improved to 0.9% (F-value of 81.852 and a probability of 0.000) and INSTITUTION and SIZE once again became the only significant explanatory variables. The findings concluded that institutional ownership and size of companies were the factors that can significantly explain Malaysian security analysis monitoring activity in reducing the agency costs in companies. Therefore, to a certain extent, Malaysian security analysts play the monitoring role in reducing the agency costs in companies listed on the KLSE. 2003 Thesis https://etd.uum.edu.my/948/ https://etd.uum.edu.my/948/1/AHMAD_RIZAL_B._MAZLAN.pdf text eng public masters masters Universiti Utara Malaysia
institution	Universiti Utara Malaysia
collection	UUM ETD
language	eng
topic	HG Finance
spellingShingle	HG Finance Ahmad Rizal, Mazlan The Role Security Analysts in Reducing Agency Costs in Companies Listed on the Kuala Lumpur Stock Exchange
description	The objective of this dissertation was to examine whether the monitoring activity performed by security analysts in Malaysia is a positive function of the level of potential agency costs in companies. This objective was based on Jensen and Meckling's proposition (1976) that security analysis performed by analysts functions as an external monitoring device in terms of reducing agency costs. Therefore, when the potential agency-related problems in a company are great, analyst research activity should be greater than when potential agency-related costs in a company are low. Based on previous studies, seven determining variables were selected as proxies for agency costs, with the number of analysts following a company (NAF) was selected as the dependent variable. SIZE, GROWTH and EXPENSE were expected to be positively related with NAF, while INSIDER, DEBTRATIO, INSTITUTION and EFFICIENCY were hypothesized to be negatively related to NAF. Using a sample of 105 companies that were included in the International Brokerage Estimates Services (IBES) earnings forecast database published in The Edge as at January 2002, a multiple regression model that was similar to that of Moyer et. al. (1989) was used to explain the amount of security analysis monitoring of individual companies. A relatively high correlation (-0.339) was recorded between GROWTH and EXPENSE. However, a subsidiary auxiliary regression performed for GROWTH against the rest of the independent variables and EXPENSE against the rest of the explanators produced R2 figures that were relatively smaller than the overall R2 of the model. This rejected a multicollineariy problem among the determining variables in the model. For the multiple regressions using enter procedure method, the results produced an R2 of 60.4% with an F-value of 23.697 and a probability of 0.000. Among the independent variables, only INSTITUTION and SIZE were statistically significant at alpha = 0.05. Next, when a stepwise regression was conducted, the results indicated that the adjusted R2 improved to 0.9% (F-value of 81.852 and a probability of 0.000) and INSTITUTION and SIZE once again became the only significant explanatory variables. The findings concluded that institutional ownership and size of companies were the factors that can significantly explain Malaysian security analysis monitoring activity in reducing the agency costs in companies. Therefore, to a certain extent, Malaysian security analysts play the monitoring role in reducing the agency costs in companies listed on the KLSE.
format	Thesis
qualification_name	masters
qualification_level	Master's degree
author	Ahmad Rizal, Mazlan
author_facet	Ahmad Rizal, Mazlan
author_sort	Ahmad Rizal, Mazlan
title	The Role Security Analysts in Reducing Agency Costs in Companies Listed on the Kuala Lumpur Stock Exchange
title_short	The Role Security Analysts in Reducing Agency Costs in Companies Listed on the Kuala Lumpur Stock Exchange
title_full	The Role Security Analysts in Reducing Agency Costs in Companies Listed on the Kuala Lumpur Stock Exchange
title_fullStr	The Role Security Analysts in Reducing Agency Costs in Companies Listed on the Kuala Lumpur Stock Exchange
title_full_unstemmed	The Role Security Analysts in Reducing Agency Costs in Companies Listed on the Kuala Lumpur Stock Exchange
title_sort	role security analysts in reducing agency costs in companies listed on the kuala lumpur stock exchange
granting_institution	Universiti Utara Malaysia
granting_department	Sekolah Siswazah
publishDate	2003
url	https://etd.uum.edu.my/948/1/AHMAD_RIZAL_B._MAZLAN.pdf
_version_	1776103609248776192

The Role Security Analysts in Reducing Agency Costs in Companies Listed on the Kuala Lumpur Stock Exchange

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