Principal-Principal Agency and Financial Flexibility in Transition Economies

Abstract

This study examined the impact of principal-principal agency on financial flexibility in transition economies. Such economies are characterized by high ownership concentration. This study analyzed secondary data on publicly listed firms in Jamaica, Trinidad and Tobago, and Barbados during the 2007 to 2013 period, using panel data analysis and Arellano and Bond 2-step Generalized Methods of Moments estimators. Contrary to evidence of past empirical studies in developed jurisdictions, these results suggested that the principal-principal agency relationship might at times enhance the financial flexibility of the firm through higher levels of internal funds, and significantly higher levels of liquidity.