Impact of Corporate Governance on Firm Value : Mediating Role of Agency Cost of Listed Companies in the Stock Exchange of Thailand

Abstract

This study aims to examine the impact of corporate governance on firm value and to investigate the mediating role of agency costs in the relationship between corporate governance and firm value. The study used 790 firm-year observations of companies listed on the Stock Exchange of Thailand during the period of 2022 and 2023. The data was analyzed using descriptive statistics, Pearson’s correlation analysis and multiple regression analysis. The results revealed that board characteristics, particularly the proportion of female directors and corporate governance scores, had a direct effect on firm value. In addition, board size, the proportion of female directors and corporate governance scores had an indirect effect on firm value through agency costs. The findings indicated that board size alone was insufficient to enhance firm value in the absence of an appropriate compensation system that effectively motivated directors to perform their duties. Conversely, a higher proportion of female directors contributed to a reduction in agency costs related to compensation, while firms with higher corporate governance scores tended to reflect superior management quality and a positive organizational image ultimately leading to increased firm value. This study underscores the importance of designing effective corporate governance mechanisms and appropriate compensation to effectively control and reduce agency costs. Such mechanisms help align the duties and decision-making of both board of directors and executives with shareholders’ interests, thereby contributing to sustainable firm value creation in the long term.