(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.