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A Dynamic Panel Model Of Capital Structure And Agency Cost In Nigerian Listed Companies

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  • Dauda Mohammed

Abstract

This study examines the impact of agency costs on capital structure of Nigeria listed companies for the period of 2000-2006. Using a dynamic panel model, the study demonstrates the extent to which asset utilization helps explain the financing structure of Nigerian firms. The main finding shows an inverse relationship between capital structure and agency costs of Nigerian firms. Thus, the negative coefficient on the agency cost variable indicates that, on average, the management of Nigerian firms chose either to use retained earnings or to issue new equity offer. Studies have shown that managers have a natural tendency to be cautious about borrowing, given that they have more to lose if the firm goes into liquidation, compared to shareholders with a diversified asset portfolio. Hence, a rise in the ratio of total sales to total assets (agency cost) would mean that the management team is efficient in using the company’s assets to generate wealth for their shareholders.

Suggested Citation

  • Dauda Mohammed, 2013. "A Dynamic Panel Model Of Capital Structure And Agency Cost In Nigerian Listed Companies," Accounting & Taxation, The Institute for Business and Finance Research, vol. 5(2), pages 33-44.
    • Handle: RePEc:ibf:acttax:v:5:y:2013:i:2:p:33-44
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    Cited by:

    1. Odunayo Magret Olarewaju & Stephen Oseko Migiro & Mabutho Sibanda, 2017. "Effect of Agency Costs on Executive Compensation in South African Commercial Banks," Journal of Economics and Behavioral Studies, AMH International, vol. 9(4), pages 25-37.
    2. Talla M Aldeehani, 2018. "Effects of the Global Financial Crisis on the Agency Cost of Islamic Banks and Conventional Banks," Applied Finance and Accounting, Redfame publishing, vol. 4(1), pages 41-53, February.

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    More about this item

    Keywords

    Capital Structure; Agency Costs; Nigeria;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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