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Non-linear dynamic panel data analysis for debt-equity choice and its impact on moral hazard problems

Author

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  • Fauziah Md. Taib
  • Anton Abdulbasah Kamil
  • Augustinus Setiawan

Abstract

Moral hazard agency problems take place when risky debt is issued. The dominant shareholders have opportunities to make decisions which effect wealth transfer. In several recent theories, debt-equity choice, which deals with agency problems assumes that financing and investment decisions are separable. These studies have been criticized due to the fact that both decisions are interdependent. The purpose of the presented paper is to test empirically the moral hazard problem of debt-equity choice in Indonesia. This study provides evidence that the level of debt is not secured by the sufficient collateral and is also not supported by growth opportunities. It seems that Indonesian companies use debt also to finance operations and not only for real investment.

Suggested Citation

  • Fauziah Md. Taib & Anton Abdulbasah Kamil & Augustinus Setiawan, 2008. "Non-linear dynamic panel data analysis for debt-equity choice and its impact on moral hazard problems," Prague Economic Papers, Prague University of Economics and Business, vol. 2008(2), pages 143-156.
    • Handle: RePEc:prg:jnlpep:v:2008:y:2008:i:2:id:326:p:143-156
    DOI: 10.18267/j.pep.326
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    References listed on IDEAS

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    More about this item

    Keywords

    moral hazard; debt-equity choice; asset substitution problem; Indonesian companies;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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