Board independence, managerial ownership and agency cost in an emerging economy: evidence from Jordan

Purpose This study aims to investigate the influence of board independence on agency costs in Jordan, an emerging economy, and examine whether managerial ownership moderates this relationship. Design/methodology/approach This study uses three agency cost measures, the expense ratio, asset utilization ratio and Q*free cash flow, and examines their relationship with board independence and managerial ownership using OLS regression, with two-stage least squares estimation to address potential endogeneity. Findings Contrary to expectations, board independence in Jordan is associated with significantly higher, not reduced, agency costs on some measures, suggesting it may be counterproductive, not merely ineffective. The interaction with managerial ownership is negative and significant on some measures, indicating it complements board independence in constraining agency costs. Research limitations/implications The findings suggest that agency theory’s predictions are conditional on institutional context, calling for theoretical models that integrate institutional, cultural and ownership factors shaping board effectiveness in emerging economies. Future research should examine whether compliance-driven rather than genuine monitoring independence explains the counterproductive effect observed here, using measures of substantive independence and longitudinal data. Practical implications The incongruence between board independence and agency cost control challenges the assumption that Western governance models transfer seamlessly to emerging markets, pointing to a need for stronger regulatory enforcement and minority investor protections in Jordan. Originality/value Although board independence is well-documented in developed markets, evidence from emerging economies remains limited. This study shows that independent directors in Jordan are counterproductively associated with higher agency costs, going beyond prior null or mixed MENA results. It also demonstrates that managerial ownership complements board independence in reducing these costs, and offers an institutional explanation, grounded in Jordan’s mandatory shareholder−director requirement, for why imported governance codes can raise rather than lower agency costs in relationship-based economies.