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 Title

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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.
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    Investigating the leverage composition of Pakistani firms through their determinants
    (Journal of Management and research., 2016) Farah Yasser
    To have an ideal mix of debt and equity in a balance sheet of an entity is till to date a very complicated issue for managers as there is no such rule to predict an optimal capital structure. An in-depth understanding is required for the corporate culture, the degree of the development of the capital market and the economy in which the firms operate. This study seeks to investigate the leverage composition of Pakistani corporations through their determinants. Fixed effect regression is used to show the relationship of determinants of capital structure on leverage corporations listed on Karachi Stock Exchange (KSE) for the period of 2006 to 2013. The results suggest that agency cost, growth, age, and size are significantly and negatively associated with the capital structure of Pakistan firms, however, collateral value of asset is significantly but positively associated with the capital structure of the firm. On the other hand, free cash flows, non debt tax shield, profitability, business risk and bankruptcy cost are not significantly associated with leverage composition of the firms and are against the signaling theory and peaking order theory. The key importance of this study is that no prior research was done for determinants like agency cost, free cash flows, bankruptcy cost and age as determinants of capital structure for Pakistani firms among other determinants. Further, this study does not confine to a particular sector rather it covers all companies listed by Karachi Stock Exchange.