Research Article
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Firm Leverage, Agency Costs and Firm Performance: An Empirical Research on Service Firms in Turkey

Year 2019, Volume: 8 Issue: 1, 624 - 636, 30.03.2019
https://doi.org/10.15869/itobiad.513268

Abstract

The
agency theory suggests that loan can reduce the agency problem of
shareholders-managers (enhance the agency problem of shareholders-lenders) and
increase (decrease) the performance of a firm. This article analyzes the impact
of firm leverage on the performance of firms with high and low agency costs. Using
the ordinary least squares (OLS) method and the 2008-2017 data of 52 firms
whose stock certificates are processed in the service sector in Istanbul Stock
Exchange; it was determined that leverage had a negative impact on firm
profitability and that impact was higher for firms with higher agency costs
(firms with higher growth opportunities and fewer tangible assets) and lower
for firms with agency costs of free cash flows (firms with higher free cash
flows).  


References

  • Abor, J. (2005). The Effect of Capital Structure on Profitability: An Empirical Analysis of Listed Firms in Ghana. The Journal of Risk Finance, 6(5), 438-445.Ang, J. S., Cole, R. A., & Lin, J. W. (2000). Agency Costs and Ownership Structure. The Journal of Finance, 55(1), 81-106.Bradley, M., Jarrel, G. A., & Kim, E. H. (1984). On the Existence of an Optimal Capital Structure: Theory and Evidence. The Journal of Finance, 39(3), 857-878.Brush, T. H., Bromiley, P., & Hendrickx, M. (2000). The Free Cash Flow Hypothesis for Sales Growth and Firm Performance. Strategic Management Journal, 21(4), 455-472.Cheffou, A. I. (2011). Agency Costs of Equity and Debt, and Corporate Incentive Compensation Policy: The French Case. International Conference of the French Finance Association (AFFI).Cheng, M.S., & Tzeng, Z. C. (2011). The Effect of Leverage on Firm Value and How the Firm Financial Quality Influence on This Effect. World Journal of Management, 3(2), 30-53.Datta, S., Datta, M. I., & Raman, K. (2005). Managerial Stock Ownership and the Maturity Structure of Corporate Debt. The Journal of Finance, 60(5), 2333-2350.Dechow, P., Richardson, S., & Sloan, R. (2008). The Persistence and Pricing of the Cash Component of Earnings. Journal of Accounting Research, 46(3), 537-566.Doukas, J. A., & Pantzalis, C. (2003). Geographic Diversification and Agency Costs of Debt of Multinational Firms. Journal of Corporate Finance, 9(1), 59-92.Ehrhardt, M.C., & Brigham, E.F. (2011). Financial Management: Theory and Practice, 13th ed, South-Western, Cengage Learning, USA.Fama, E. F., & French, K. R. (2002). Testing Trade-Off and Pecking Order Predictions about Dividends and Debt. Review of Financial Studies, 15(1), 1-33.Farooq, S., Ahmed, S., & Saleem, K. (2014). Impact of Overinvestment & Underinvestment on Corporate Performance: Evidence from Singapore Stock Market. Available at SSRN: https://ssrn.com/abstract=2512436.Fosu, S., Danso, A., Ahmad, W., & Coffie, W. (2016). Information asymmetry, leverage and firm value: Do crisis and growth matter?. International Review of Financial Analysis, 46, 140–150.Frank, M. Z., & Goyal, V. K. (2009). Capital Structure Decisions: Which Factors Are Reliably Important?. Financial Management, 38(1), 1-37.Gay, G.D., & Nam, J. (1998). The Underinvestment Problem and Corporate Derivatives Use. Financial Management, 27(4), 53 – 69.Harvey, C.R., Lins, K.V., & Roper, A. H. (2004). The Effect of Capital Structure when Expected Agency costs are Extreme. Journal of Financial Economics 74, 3–30.Heydari, I., Mirzaeifar, M., & Javadghayedi, M. (2014). Investigating the Relationship between Free Cash Flows and Firm Performance: Evidence from Tehran Stock Exchange, Indian J.Sci.Res. 4 (6), 269-279.Hong, Z., Shuting, Y., & Meng, Z. (2012). Relationship between Free Cash Flow and Financial Performance, Evidence from the Listed Real Estate Companies in China. International Conference on Innovation and Information Management, 36, 331-335.Jensen, M. C. (1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. American Economic Review, 76(2), 323-329.Jensen, M. C. & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305-360.Kadioglu, E., & Yilmaz, E. A. (2017). Is the Free Cash Flow Hypothesis Valid in Turkey?. Borsa Istanbul Review 17-2, 111-116.Kadioglu, E., Kilic, S., & Yilmaz, E. A. (2017). Testing the Relationship between Free Cash Flow and Company Performance in Borsa Istanbul. International Business Research, 10(5), 148-158.Kebewar, M., (2013). Does debt affect profitability? An empirical study of French trade sector, https://halshs.archives-ouvertes.fr/halshs-00780310.Lasfer, M. A. (1995). Agency Costs, Taxes and Debt: The UK Evidence. European Financial Management, 1(3), 265-285.Lee, S., Koh, Y., & Huh, C. (2010). Financial Distress for U.S. Lodging Industry: Effects of Leverage, Capital Intensity, and Internationalization. International CHRIE Conference Refereed Track. 3. http://scholarworks.umass.edu/refereed/CHRIE_2010/Saturday/3.Li, H., & Cui, L. (2003). Empirical Study of Capital Structure on Agency Costs in Chinese Listed Firms. Nature and Science, 1(1), 12-20.Morgado, A., & Pindado, J. (2003). The underinvestment and overinvestment hypotheses: an analysis using panel data. European Financial Management 9 (2), 163-177.Mostaghimi, M., Ramezanpour, E., & Nozari, A. H. (2014). Studying the Effect of Financial Leverage on Agency Cost Resulting from Free Cash Flow of Manufacturing Companies Accepted in Tehran Stock Exchange. Singaporean Journal of Business Economics, And Management Studies, 3(3), 1-9.Myers, S.C. (1984). The Capital Structure Puzzle. Journal of Finance, 39(3), 575-592.Myers, S.C. (1977). Determinants of Corporate Borrowing. Journal of Financial Economics 5, 147-175.Nazir, M.S., Saita, H. K., & Nawaz, M. M. (2012). The Role of Debt in Reducing Agency Cost: Empirical Evidence from Pakistan. Innova Ciencia, 4(5), 28-43.Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics 52, 3-46.Prak, K., & Jang, S.S. (2013). Capital structure, free cash flow, diversification and firm performance: A holistic analysis. International Journal of Hospitality Management 33(1), 51–63.Salim, M., & Yadav, R. (2012). Capital Structure and Firm Performance: Evidence from Malaysian Listed Companies, Procedia - Social and Behavioral Sciences 65, 156 – 166.Salmanzadeh, H., Jafari, V., Anjomani, R., & Marefat, S. (2014). Effect of Capital Structure, Free Cash Flow and Diversification on Firm Performance. Journal of Applied Business and Finance Researches, 3(2), 33-39.Soumadi, M. M., and Hayajneh, O. S. (2012). Capital Structure and Corporate Performance: Empirical Study on the Public Jordanian Shareholdings Firms Listed in the Amman Stock Market. European Scientific Journal, 8(22), 173-189.Titman, S., and Wessels, R. (1988) “The Determinants of Capital Structure Choice”, Journal of Finance, 43(1): 1-19.Turbaoğlu, T.T., Erkol, A. Y., & Topaloğlu, E. E. (2017). Finansal Başarısızlık ve Sermaye Yapısı Kararları: BIST 100 Endeksindeki Firmalar Üzerine Bir Uygulama. Business and Economics Research Journal, 8(2), 247-258.Zeitun, R., and Tian, G.G. (2007). Capital Structure and Corporate Performance: Evidence from Jordan. Australasian Accounting, Business and Finance Journal, 1(4), 40-61.Zhang, H., & Li, S. (2008). The Impact of Capital Structure on Agency Costs: Evidence from UK Public Companies, Proceedings of the 16th Annual Conference on Pacific Basin Finance, Economics, Accounting and Management, Brisbane, Australia, 1-18.

Firma Kaldıracı, Vekalet Maliyetleri ve Firma Performansı: Türkiye’de Hizmet Firmaları Üzerinde Ampirik Bir Araştırma

Year 2019, Volume: 8 Issue: 1, 624 - 636, 30.03.2019
https://doi.org/10.15869/itobiad.513268

Abstract

Agency teorisi,
borçlanmanın hissedarlar-yöneticiler agency problemini azaltarak
(hissedarlar-borç verenler agency problemini arttırarak) firmanın performansını
artırabileceğini (azaltabileceğini) önermektedir. Bu çalışma kaldıracın yüksek
ve düşük agency maliyetlerine sahip olan firmaların performansı üzerinde
etkisini analiz etmiştir. En küçük kareler yönetimi (OLS) ve Borsa İstanbul’da
(BİST) hizmet sektöründe hisse senetleri işlem gören 52 firmanın 2008-2017 yıllarına
ait verilerini kullanarak kaldıracın firma karlılığı üzerindeki etkisi negatif,
ve bu negatif etki yüksek borcun agency maliyetlerine sahip firmalar için
(yüksek büyüme fırsatları ve daha az maddi duran varlıklara sahip firmalar)
daha yüksek, serbest nakit akışlarının agency maliyetlerine sahip firmalar için
(yüksek serbest nakit akışlarına sahip firmalar) ise daha düşük olduğu tespit
edilmiştir.

References

  • Abor, J. (2005). The Effect of Capital Structure on Profitability: An Empirical Analysis of Listed Firms in Ghana. The Journal of Risk Finance, 6(5), 438-445.Ang, J. S., Cole, R. A., & Lin, J. W. (2000). Agency Costs and Ownership Structure. The Journal of Finance, 55(1), 81-106.Bradley, M., Jarrel, G. A., & Kim, E. H. (1984). On the Existence of an Optimal Capital Structure: Theory and Evidence. The Journal of Finance, 39(3), 857-878.Brush, T. H., Bromiley, P., & Hendrickx, M. (2000). The Free Cash Flow Hypothesis for Sales Growth and Firm Performance. Strategic Management Journal, 21(4), 455-472.Cheffou, A. I. (2011). Agency Costs of Equity and Debt, and Corporate Incentive Compensation Policy: The French Case. International Conference of the French Finance Association (AFFI).Cheng, M.S., & Tzeng, Z. C. (2011). The Effect of Leverage on Firm Value and How the Firm Financial Quality Influence on This Effect. World Journal of Management, 3(2), 30-53.Datta, S., Datta, M. I., & Raman, K. (2005). Managerial Stock Ownership and the Maturity Structure of Corporate Debt. The Journal of Finance, 60(5), 2333-2350.Dechow, P., Richardson, S., & Sloan, R. (2008). The Persistence and Pricing of the Cash Component of Earnings. Journal of Accounting Research, 46(3), 537-566.Doukas, J. A., & Pantzalis, C. (2003). Geographic Diversification and Agency Costs of Debt of Multinational Firms. Journal of Corporate Finance, 9(1), 59-92.Ehrhardt, M.C., & Brigham, E.F. (2011). Financial Management: Theory and Practice, 13th ed, South-Western, Cengage Learning, USA.Fama, E. F., & French, K. R. (2002). Testing Trade-Off and Pecking Order Predictions about Dividends and Debt. Review of Financial Studies, 15(1), 1-33.Farooq, S., Ahmed, S., & Saleem, K. (2014). Impact of Overinvestment & Underinvestment on Corporate Performance: Evidence from Singapore Stock Market. Available at SSRN: https://ssrn.com/abstract=2512436.Fosu, S., Danso, A., Ahmad, W., & Coffie, W. (2016). Information asymmetry, leverage and firm value: Do crisis and growth matter?. International Review of Financial Analysis, 46, 140–150.Frank, M. Z., & Goyal, V. K. (2009). Capital Structure Decisions: Which Factors Are Reliably Important?. Financial Management, 38(1), 1-37.Gay, G.D., & Nam, J. (1998). The Underinvestment Problem and Corporate Derivatives Use. Financial Management, 27(4), 53 – 69.Harvey, C.R., Lins, K.V., & Roper, A. H. (2004). The Effect of Capital Structure when Expected Agency costs are Extreme. Journal of Financial Economics 74, 3–30.Heydari, I., Mirzaeifar, M., & Javadghayedi, M. (2014). Investigating the Relationship between Free Cash Flows and Firm Performance: Evidence from Tehran Stock Exchange, Indian J.Sci.Res. 4 (6), 269-279.Hong, Z., Shuting, Y., & Meng, Z. (2012). Relationship between Free Cash Flow and Financial Performance, Evidence from the Listed Real Estate Companies in China. International Conference on Innovation and Information Management, 36, 331-335.Jensen, M. C. (1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. American Economic Review, 76(2), 323-329.Jensen, M. C. & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305-360.Kadioglu, E., & Yilmaz, E. A. (2017). Is the Free Cash Flow Hypothesis Valid in Turkey?. Borsa Istanbul Review 17-2, 111-116.Kadioglu, E., Kilic, S., & Yilmaz, E. A. (2017). Testing the Relationship between Free Cash Flow and Company Performance in Borsa Istanbul. International Business Research, 10(5), 148-158.Kebewar, M., (2013). Does debt affect profitability? An empirical study of French trade sector, https://halshs.archives-ouvertes.fr/halshs-00780310.Lasfer, M. A. (1995). Agency Costs, Taxes and Debt: The UK Evidence. European Financial Management, 1(3), 265-285.Lee, S., Koh, Y., & Huh, C. (2010). Financial Distress for U.S. Lodging Industry: Effects of Leverage, Capital Intensity, and Internationalization. International CHRIE Conference Refereed Track. 3. http://scholarworks.umass.edu/refereed/CHRIE_2010/Saturday/3.Li, H., & Cui, L. (2003). Empirical Study of Capital Structure on Agency Costs in Chinese Listed Firms. Nature and Science, 1(1), 12-20.Morgado, A., & Pindado, J. (2003). The underinvestment and overinvestment hypotheses: an analysis using panel data. European Financial Management 9 (2), 163-177.Mostaghimi, M., Ramezanpour, E., & Nozari, A. H. (2014). Studying the Effect of Financial Leverage on Agency Cost Resulting from Free Cash Flow of Manufacturing Companies Accepted in Tehran Stock Exchange. Singaporean Journal of Business Economics, And Management Studies, 3(3), 1-9.Myers, S.C. (1984). The Capital Structure Puzzle. Journal of Finance, 39(3), 575-592.Myers, S.C. (1977). Determinants of Corporate Borrowing. Journal of Financial Economics 5, 147-175.Nazir, M.S., Saita, H. K., & Nawaz, M. M. (2012). The Role of Debt in Reducing Agency Cost: Empirical Evidence from Pakistan. Innova Ciencia, 4(5), 28-43.Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics 52, 3-46.Prak, K., & Jang, S.S. (2013). Capital structure, free cash flow, diversification and firm performance: A holistic analysis. International Journal of Hospitality Management 33(1), 51–63.Salim, M., & Yadav, R. (2012). Capital Structure and Firm Performance: Evidence from Malaysian Listed Companies, Procedia - Social and Behavioral Sciences 65, 156 – 166.Salmanzadeh, H., Jafari, V., Anjomani, R., & Marefat, S. (2014). Effect of Capital Structure, Free Cash Flow and Diversification on Firm Performance. Journal of Applied Business and Finance Researches, 3(2), 33-39.Soumadi, M. M., and Hayajneh, O. S. (2012). Capital Structure and Corporate Performance: Empirical Study on the Public Jordanian Shareholdings Firms Listed in the Amman Stock Market. European Scientific Journal, 8(22), 173-189.Titman, S., and Wessels, R. (1988) “The Determinants of Capital Structure Choice”, Journal of Finance, 43(1): 1-19.Turbaoğlu, T.T., Erkol, A. Y., & Topaloğlu, E. E. (2017). Finansal Başarısızlık ve Sermaye Yapısı Kararları: BIST 100 Endeksindeki Firmalar Üzerine Bir Uygulama. Business and Economics Research Journal, 8(2), 247-258.Zeitun, R., and Tian, G.G. (2007). Capital Structure and Corporate Performance: Evidence from Jordan. Australasian Accounting, Business and Finance Journal, 1(4), 40-61.Zhang, H., & Li, S. (2008). The Impact of Capital Structure on Agency Costs: Evidence from UK Public Companies, Proceedings of the 16th Annual Conference on Pacific Basin Finance, Economics, Accounting and Management, Brisbane, Australia, 1-18.
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Details

Primary Language English
Journal Section Articles
Authors

İsmail Kalash 0000-0002-0674-0136

Publication Date March 30, 2019
Published in Issue Year 2019 Volume: 8 Issue: 1

Cite

APA Kalash, İ. (2019). Firm Leverage, Agency Costs and Firm Performance: An Empirical Research on Service Firms in Turkey. İnsan Ve Toplum Bilimleri Araştırmaları Dergisi, 8(1), 624-636. https://doi.org/10.15869/itobiad.513268

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