Impact of Agency Costs on Financial Performance of Listed Consumer Goods Companies in Nigeria

Binta Abubakar Nuhu; Kabiru Isa Dandago; Lawal  Mohammad; Abdullahi Bala Ado; Umar Farouk Abdulkarim

doi:10.37231/jmtp.2020.1.3.51

Binta Abubakar Nuhu National Research institute for Chemical Technology Zaria, Kaduna Nigeria
Kabiru Isa Dandago Department of Accounting, BUK Bayero University, Kano Nigeria
Lawal Mohammad Faculty Department of Accounting, ABU Business School, Ahmadu Bello University, Zaria
Abdullahi Bala Ado Al-Qalam University Katsina
Umar Farouk Abdulkarim Department of Accounting and Finance, Federal University Gusau, Zamfara State, Nigeria

DOI: https://doi.org/10.37231/jmtp.2020.1.3.51

Keywords: Free Cash flow, Agency Cost, Financial performance, Consumer goods

Abstract

This paper examined impact of agency costs on financial performance of listed consumer goods companies in Nigeria. The research utilized documentary data collected from annual reports of consumer goods companies in Nigeria for the period of 2007-2016. A panel data regression technique was employed. The study reveals inverse relationship between agency costs and financial performance, indicating that agency costs will lead to a decline in financial performance, if not properly managed. Based on this result the study recommends that managements of listed consumer goods companies in Nigeria should lay down effective rules and regulations that will ensure avoidance of keeping free cash flow at managers’ discretion so that agency costs could be minimized and effectively managed. This could be achieved by complying with the suggestions by free cash flow hypothesis paying it out in the form of cash dividend or committing the firms in to more financial obligations which requires periodic interest payments. There should be critical reviewed before such action are taken by companies in consumer goods industries.

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Author Biographies

Kabiru Isa Dandago, Department of Accounting, BUK Bayero University, Kano Nigeria

Professor of Accounting

Lawal Mohammad, Faculty Department of Accounting, ABU Business School, Ahmadu Bello University, Zaria

Lecturer

Abdullahi Bala Ado, Al-Qalam University Katsina

Abdullahi Bala Ado is a PhD Scholar with Universiti Sultan Zainal Abidin and he is currently a lecturer at the famous Al-Qalam University, Katsina, he specializes in International Accounting/taxation, corporate Governance, Auditing and Forensic Accounting & Fraud Management. He is also an experienced user of econometrics and Statistical packages (SPSS, EVIEWS and STATA). Abdullahi is a member of several professional bodies including the Nigerian Institute of Management (Chartered), Teachers Registration Council of Nigeria, Association of Financial Analysts of Nigeria and International Institute of Certified Forensic Investigation Professionals. He has also published in peer review reputable international journals.

Umar Farouk Abdulkarim, Department of Accounting and Finance, Federal University Gusau, Zamfara State, Nigeria

Lecturer

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