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The Relation Between Growth Opportunity, Leverage Policy And Function Of Covenant To Control The Agency Conflict Between Shareholders And Debtholders

Author

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  • Rhini Fatmasari

    (FKIP Universitas Terbuka)

Abstract

Agency conflict is a phenomenon that occurs when a firm is doing its financing policies, especially of those related to the leverage strategies. Some of the former researches revealed some empirical evidence of the existence of a negative effect between growth opportunity, leverage, and debt maturity as one of the efforts in controlling the agency conflict between stockholders and bondholders. By using panel data regression model and data observation for over six years, this studies found that firms with high growth opportunity tend to use low leverage policies with short maturity to control the agency conflict between stockholders and bondholders. On the other hand, firms with low growth opportunity tend to use higher leverage policies with a longer period of debt maturity. Moreover, covenant as a moderating variable, could lower the negative relation between growth opportunity and leverage, but it could not diminish the negative relation between growth opportunity and debt maturity. Debt maturity and covenant also could not be use as substitution variable to lessen the agency conflict.

Suggested Citation

  • Rhini Fatmasari, 2011. "The Relation Between Growth Opportunity, Leverage Policy And Function Of Covenant To Control The Agency Conflict Between Shareholders And Debtholders," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 13(3), pages 1-18, January.
    • Handle: RePEc:idn:journl:v:13:y:2011:i:3g:p:1-18
    DOI: https://doi.org/10.21098/bemp.v13i3.395
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    More about this item

    Keywords

    growth opportunity; leverage; debt maturity; covenant; stockholders and bondholders conflicts;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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