School of Commerce and Accountancy (SCA)

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https://escholar.umt.edu.pk/handle/123456789/676
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Browsing School of Commerce and Accountancy (SCA) by Author "Muhammad Musarrat Nawaz"

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    How leverage affects agency cost: Investigating a non-linear relationship in Pakistani firms
    (2012) Mian Sajid Nazir; Haris Khursheed Saita; Iftikhar Ahmad; Muhammad Musarrat Nawaz
    This study tests the agency cost hypothesis that use of debt decreases agency cost. This relationship has been tested using data of 265 non-financial companies listed on Karachi stock exchange during the period of 2004-2009. Assets utilization and General& Administrative expense ratio are used as proxy to measure agency cost. As suggested by Jensen and Meckling (1976) that relationship between leverage and agency cost may not be monotonic and excessive high leverage may have positive effect on agency cost. To test this possibility non-linear regression model has also been included. We find evidence in support of agency cost hypothesis. Results show that total debt reduces agency cost. We also find some evidence of non-linear relationship between total debt and agency cost. In Pakistan nonfinancial companies at total debt ratio of above 60% the diminishing effect of leverage on agency cost starts to diminish and regression results give some evidence that further increase in leverage increases total agency cost. This study also provides implication for the debt holders as well as the policy makers on the use of debt in total financing of a firm.
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    The impact of financial leverage on agency cost: Empirical evidence from non-financial sector of Pakistan
    (Scienec Record, 2012) Mian Sajid Nazir; Haris Khursheed Saita; Iftikhar Ahmad; Muhammad Musarrat Nawaz
    This study tests the agency cost hypothesis that use of leverage decreases agency cost. This relationship has been tested using data of 265 non-financial companies listed on Karachi stock exchange during the period of 2004-2009. General & admin expense to sales ratio is used as proxy to measure agency cost. Total, short term, long term and contractual debt ratios have been used separately to test agency cost hypothesis. The results of pooled and panel regression models show that general &admin expense ratio is negatively related to all four leverage ratios. Thus, this study givesevidence in support of agency cost hypothesis that use of debt in capital structure reduces agency cost.