Do MOSAL controllers curb agency costs?

Abstract

This paper investigates whether and how financial and administrative controllers of the Ministry of Social Affairs and Labor (MOSAL) decrease agency costs in consumer cooperative societies (co-ops) in Kuwait. It hypothesizes that MOSAL controllers are effective monitors in reducing agency costs. The study employs a multivariate regression model and calculates the t-values using Roger’s robust standard errors, correcting for co-op clusters due to the potential cross-sectional correlation and autocorrelation of the error terms to test a sample of 929 observations for 59 consumer cooperative societies from 2000–2018. The empirical results support the hypothesis. Further tests show that low-performing co-ops have lower agency costs. However, the presence of the financial and administrative controllers has no effect on agency costs in high-performing co-ops. Also, the effect that MOSAL controllers have on agency costs varies among co-ops. This study complements a line of research on co-op governance and adds to the empirical evidence on the association of corporate governance and agency costs. It also helps understand how regulators influence management and board discretion to safeguard co-op shareholder rights. Further, it explores an important sector and analyzes a unique, comprehensive, and rarely tested dataset.