Determinants of Leverage and Agency problems

A. de Jong, R. Dijk

Research output: Working paperDiscussion paperOther research output

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Abstract

In this paper we empirically investigate the determinants of leverage and agency problems and we examine the relationships between leverage and agency problems. As in Titman and Wessels (1988) we use structural equations modeling with latent variables. In contrast to Titman and Wessels (1988), who employ data obtained from annual reports and capital markets, we use questionnaire data to measure firm characteristics. The questions concern the characteristics of the respondents’ firms, including the presence of agency problems. We estimate the relations between these characteristics. The results confirm that the trade-off between tax advantages and bankruptcy costs determines leverage. We also find free cash flow and corporate governance characteristics as determinants of overinvestment. Despite findings that agency problems are present, direct relationships between leverage and four agency problems are absent.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages44
Volume1998-82
Publication statusPublished - 1998

Publication series

NameCentER Discussion Paper
Volume1998-82

Fingerprint

Agency problems
Leverage
Structural equation modeling
Bankruptcy costs
Tax
Corporate governance
Capital markets
Trade-offs
Firm characteristics
Latent variables
Annual reports
Free cash flow
Questionnaire
Overinvestment

Keywords

  • capital structure
  • agency costs

Cite this

de Jong, A., & Dijk, R. (1998). Determinants of Leverage and Agency problems. (CentER Discussion Paper; Vol. 1998-82). Tilburg: Finance.
de Jong, A. ; Dijk, R. / Determinants of Leverage and Agency problems. Tilburg : Finance, 1998. (CentER Discussion Paper).
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de Jong, A & Dijk, R 1998 'Determinants of Leverage and Agency problems' CentER Discussion Paper, vol. 1998-82, Finance, Tilburg.

Determinants of Leverage and Agency problems. / de Jong, A.; Dijk, R.

Tilburg : Finance, 1998. (CentER Discussion Paper; Vol. 1998-82).

Research output: Working paperDiscussion paperOther research output

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T1 - Determinants of Leverage and Agency problems

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AU - Dijk, R.

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PY - 1998

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N2 - In this paper we empirically investigate the determinants of leverage and agency problems and we examine the relationships between leverage and agency problems. As in Titman and Wessels (1988) we use structural equations modeling with latent variables. In contrast to Titman and Wessels (1988), who employ data obtained from annual reports and capital markets, we use questionnaire data to measure firm characteristics. The questions concern the characteristics of the respondents’ firms, including the presence of agency problems. We estimate the relations between these characteristics. The results confirm that the trade-off between tax advantages and bankruptcy costs determines leverage. We also find free cash flow and corporate governance characteristics as determinants of overinvestment. Despite findings that agency problems are present, direct relationships between leverage and four agency problems are absent.

AB - In this paper we empirically investigate the determinants of leverage and agency problems and we examine the relationships between leverage and agency problems. As in Titman and Wessels (1988) we use structural equations modeling with latent variables. In contrast to Titman and Wessels (1988), who employ data obtained from annual reports and capital markets, we use questionnaire data to measure firm characteristics. The questions concern the characteristics of the respondents’ firms, including the presence of agency problems. We estimate the relations between these characteristics. The results confirm that the trade-off between tax advantages and bankruptcy costs determines leverage. We also find free cash flow and corporate governance characteristics as determinants of overinvestment. Despite findings that agency problems are present, direct relationships between leverage and four agency problems are absent.

KW - capital structure

KW - agency costs

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BT - Determinants of Leverage and Agency problems

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de Jong A, Dijk R. Determinants of Leverage and Agency problems. Tilburg: Finance. 1998. (CentER Discussion Paper).