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Agency Costs and the Long-Run Performance of Debt Issuers

Author

Listed:
  • Yusnidah Ibrahim

    (College of Business, Universiti Utara Malaysia, 06010 UUM Sintok, Kedah)

  • Md Mohan Uddin

    (College of Business, Universiti Utara Malaysia, 06010 UUM Sintok, Kedah)

  • Kamarun Nisham Taufil Mohd

    (College of Business, Universiti Utara Malaysia, 06010 UUM Sintok, Kedah)

  • Mohd Sobri Minai

    (College of Business, Universiti Utara Malaysia, 06010 UUM Sintok, Kedah)

Abstract

This study focuses on an agency cost explanation of the long-run performance of debt issuers based on debt issuance data in Malaysia during the period from January 2001 to October 2009. L ong-run performance is measured by buy and hold abnormal return (BHAR), while growth opportunities (GO), managerial ownership (MO), ownership concentration (OC) and free cash flow (FCF) are adopted as proxies for agency costs. Using a linear regression method, this study finds that BHAR is positively influenced by GO and OC but negatively influenced by MO and FCF, which supports an agency cost explanation of capital structure. An improvement in the performance of debt issuers is found to be associated with the monitoring of debt by debt issuers. Debt issuers with more concentrated ownership and lower MO benefit from the issuance of debt through a reduction of agency costs.

Suggested Citation

  • Yusnidah Ibrahim & Md Mohan Uddin & Kamarun Nisham Taufil Mohd & Mohd Sobri Minai, 2013. "Agency Costs and the Long-Run Performance of Debt Issuers," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 9(1), pages 67-87.
    • Handle: RePEc:usm:journl:aamjaf00901_67-87
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