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Determinants of Leverage and Agency Problems: A Regression Approach with Survey Data

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  • Abe De Jong
  • Ronald Van Dijk
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    Abstract

    This paper reports on empirical investigations of the determinants of leverage and agency problems. Use is made of private data obtained through questionnaires, and a regression model is estimated in which leverage and four agency problems are explained, i.e. direct wealth transfer, asset substitution, underinvestment and overinvestment. The application of regression analysis on survey data is novel in finance. Therefore, this paper contains an in-depth description of the research methods. Results for a sample of Dutch firms confirm that the trade-off between tax advantages and bankruptcy costs determines leverage. Free cash flow and corporate governance characteristics appear to be determinants of overinvestment. Despite finding that agency problems are present, no evidence is found for direct relations between leverage and the agency problems.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/13518470701198734
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal The European Journal of Finance.

    Volume (Year): 13 (2007)
    Issue (Month): 6 ()
    Pages: 565-593

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    Handle: RePEc:taf:eurjfi:v:13:y:2007:i:6:p:565-593

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    Related research

    Keywords: Survey research; capital structure; the Netherlands; agency problems; corporate governance;

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    Cited by:
    1. Mehdi Nekhili & Afifa Wali Siala & Dhikra Chebbi, 2009. "Free cash flow, gouvernance et politique financière des entreprises françaises," Working Papers CREGO 1090102, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
    2. Christian Dorion & Pascal François & Gunnar Grass & Alexandre Jeanneret, 2014. "Convertible Debt and Shareholder Incentives," Cahiers de recherche 1403, CIRPEE.
    3. Dorion, Christian & François, Pascal & Grass, Gunnar & Jeanneret, Alexandre, 2014. "Convertible debt and shareholder incentives," Journal of Corporate Finance, Elsevier, vol. 24(C), pages 38-56.
    4. Ciarán mac an Bhaird & Brian Lucey, 2010. "Determinants of capital structure in Irish SMEs," Small Business Economics, Springer, vol. 35(3), pages 357-375, October.

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