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Determining Agency Theory Framework through Financial Leverage & Insider Ownership

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Listed:
  • Hafiz Mustansar Javaid
  • Snober Javid

Abstract

Sound practices of corporate governance help firms to lift their performance and bring in investors¡¯ confidence while enabling shareholders¡¯ rights protection, qualifying the legal requirements and spotlight the vast public image about how they are operating their business. Most of the previous literature on agency theory in Pakistan has demonstrated connection among ownership structure on firm performance, value and profitability. This study extends the literature by proposing the effect of change in leverage & insider equity ownership on agency cost mitigation. Proxy is used to measure agency cost: Expense ratio: Operating expense / annual sales. We applied ¡°Fixed effect¡± method on sample of 41 non-financial firms from four economic groups listed in Pakistan Stock Exchange from the period of 2010-2014. The practical implications of the study is that those investors who desire long term performance of the firm may perhaps invested in those firms which are owned by insiders or containing acceptable amount of debt, for the reason that such firms try to maintain & continue long term performance by agency cost minimization & shareholders¡¯ interests protections.

Suggested Citation

  • Hafiz Mustansar Javaid & Snober Javid, 2017. "Determining Agency Theory Framework through Financial Leverage & Insider Ownership," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(3), pages 21-28, March.
    • Handle: RePEc:ibn:ijefaa:v:9:y:2017:i:3:p:21-28
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    agency cost; block-holders; insider equity ownership; entrenchment effect;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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