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Determinants of Leverage and Agency problems

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  • Jong, A. de
  • Dijk, R.

    (Tilburg University, Center for Economic Research)

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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.

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    Bibliographic Info

    Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1998-82.

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    Date of creation: 1998
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    Handle: RePEc:dgr:kubcen:199882

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    Web page: http://center.uvt.nl

    Related research

    Keywords: capital structure; agency costs;

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    Cited by:
    1. Evaldo Guimarães Barbosa & Cristiana De Castro Moraes, 2003. "Determinants Of The Firm’S Capital Structure - The Case Of The Very Small Enterprises," Finance 0302001, EconWPA, revised 14 Feb 2003.

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