Impact of Agency Effect on Corporate Performance: An Empirical Study

Abstract

No promoter would like to share his power with other shareholders, be it managers, workers, government, public or
institutional investors. But in order to succeed, he has to choose between growth versus con trol. In order to grow at a rapid pace,
promoters have to raise capital from the capital market, which will certainly dilute their control. The stake of different
shareholders affects the core competencies of the company, which holds the key to success. The current article tries to find the
similarities in the nature of agency effect among top five companies within each sector. The objective behind this study is to help
promoters and government decide the optimal agency effect, which can lead to corporate success. Un ique agency effect for each
company plays a key role in its acquiring core competencies. Companies can formulate their strategies based on their core
competencies and resources availability, which are affected by the nature of agency effect that the promoters are willing to
accept. The current study captures this effect by adopting the methodology o f the discriminant analysis.