A Dynamic Panel Model of Capital Structure and Agency Cost in Nigerian Listed Companies
Year: 2013
Type: article
Abstract: This study examines the impact of agency costs on capital structure of Nigeria listed companies for the period of 2000-2006. Using a dynamic panel model, the study demonstrates the extent to which asset utilization helps explain the financing structure of Nigerian firms. The main finding shows an inverse relationship between capital structure and agency costs of Nigerian firms. Thus, the negative coefficient on the agency cost variable indicates that, on average, the management of Nigerian firms chose either to use retained earnings or to issue new equity offer. Studies have shown that managers have a natural tendency to be cautious about borrowing, given that they have more to lose if the firm goes into liquidation, compared to shareholders with a diversified asset portfolio. Hence, a rise in the ratio of total sales to total assets (agency cost) would mean that the management team is efficient in using the company’s assets to generate wealth for their shareholders.
Author: Dauda Mohammed
Institution: Bayero University Kano
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1808263647