Board Composition and Agency Costs (Reviewing the Assumptions of Stewardship Theory in Iranian Companies)

A bulk of research done on the effectiveness of the Board of Directors on managing companies and determining managing policies has been highly built on the assumptions of Agency Theory. However, few attempts, especially in Iran have focused on examining the assumptions of other organizational theories such as Stewardship Theory. To this end, the present study examined the effectiveness of board composition on agency costs based on the stewardship theory. The sample consisted of 80 companies listed in Tehran Stock Exchange from 2001-2009 and the statistical method applied was regression model of the panel data. The findings indicated that the percentage of inside directors on the board does not have a significant effect on the agency costs. Nonetheless, the variable co-efficient sign of the percentage of the inside directors on the board potentially confirmed the assumptions of stewardship theory and the advisory role of directors on the board. In other words, the inside directors on the board and their advisory role can be considered as a potential tool for improving the performance and mitigating agency conflicts.