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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

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.

Suggested Citation

  • Abe De Jong & Ronald Van Dijk, 2007. "Determinants of Leverage and Agency Problems: A Regression Approach with Survey Data," The European Journal of Finance, Taylor & Francis Journals, vol. 13(6), pages 565-593.
    • Handle: RePEc:taf:eurjfi:v:13:y:2007:i:6:p:565-593
    DOI: 10.1080/13518470701198734
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    References listed on IDEAS

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    1. Cools, C., 1993. "Capital structure choice : Confronting (meta)theory, empirical test and executive opinion," Other publications TiSEM 98e17765-3a3a-4ec2-978f-6, Tilburg University, School of Economics and Management.
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    Cited by:

    1. Murphy, Gareth & Walsh, Mark & Willison, Matthew, 2012. "Financial Stability Paper No 16: Precautionary contingent capital," Bank of England Financial Stability Papers 16, Bank of England.
    2. Gao, Jingyi, 2022. "Global value chain and firms’ leverage: The mediator role of foreign ownership," Finance Research Letters, Elsevier, vol. 48(C).
    3. 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.
    4. Christian Dorion & Pascal François & Gunnar Grass & Alexandre Jeanneret, 2014. "Convertible Debt and Shareholder Incentives," Cahiers de recherche 1403, CIRPEE.
    5. Popova, Svetlana & Karlova, Nataliya & Ponomarenko, Alexey & Deryugina, Elena, 2017. "Analysis of the debt burden in Russian economy sectors," Russian Journal of Economics, Elsevier, vol. 3(4), pages 379-410.
    6. Nicolas Aragon, 2022. "Debt Overhang, Risk Shifting and Zombie Lending," Working Papers 01/2022, National Bank of Ukraine.
    7. Guimarães Barbosa, Evaldo, 2016. "Determinants of Small Business Survival: The Case of Very Small Enterprises of the Traditional Manufacturing Sectors in Brazil," MPRA Paper 72304, University Library of Munich, Germany.
    8. Mai, Nhat Chi, 2012. "Market timing, taxes and capital structure: evidence from Vietnam," OSF Preprints t3mvs, Center for Open Science.
    9. Angel Huerga & Carlos Rodríguez-Monroy, 2019. "Mandatory Convertible Bonds and the Agency Problem," Sustainability, MDPI, vol. 11(15), pages 1-21, July.
    10. Mehdi Nekhili & Afifa Wali Siala & Dhikra Chebbi-Nehkili, 2009. "Free Cash Flow, gouvernance et politique financière des entreprises françaises," Revue Finance Contrôle Stratégie, revues.org, vol. 12(1), pages 5-31, March.
    11. Aboud, Ahmed & Roberts, Clare, 2018. "Managers’ segment disclosure choices under IFRS 8: EU evidence," Accounting forum, Elsevier, vol. 42(4), pages 293-308.
    12. Bruce Burton & Satish Kumar & Nitesh Pandey, 2020. "Twenty-five years of The European Journal of Finance (EJF): a retrospective analysis," The European Journal of Finance, Taylor & Francis Journals, vol. 26(18), pages 1817-1841, December.
    13. 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.
    14. Hanousek, Jan & Shamshur, Anastasiya, 2011. "A stubborn persistence: Is the stability of leverage ratios determined by the stability of the economy?," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1360-1376.
    15. Yang, Huan, 2021. "Institutional dual holdings and risk-shifting: Evidence from corporate innovation," Journal of Corporate Finance, Elsevier, vol. 70(C).

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