The impact of financial leverage on agency cost: Empirical evidence from non-financial sector of Pakistan
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Date
2012
Journal Title
Journal ISSN
Volume Title
Publisher
Scienec Record
Abstract
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.
Description
Keywords
Debt ratio, Finance, Leverage
Citation
Science Series Data Report Vol 4, No. 6;Jun 2012, 79-94