THE IMPACT OF OWNERSHIP AND CAPITAL STRUCTURE ON THE FLUCTUATION OF AGENCY COSTS: CASE STUDY OF LOW CONCENTRATED OWNERSHIP COMPANIES OF THE REPUBLIC OF CROATIA

Ljerka Cerovic (), Vinko Zaninović and Nikolina Dukic ()
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Ljerka Cerovic: Faculty of Economics Rijeka
Nikolina Dukic: Faculty of Economics Rijeka

Economic Thought and Practice, 2011, vol. 20, issue 2, 419-442

Abstract: The mathematical model of calculating agency costs, as presented in this paper, confirmed the hypothesis of agency theory on the impact of ownership structure on borrowing, and on a negative correlation between financial leverage and agency costs. Model was developed on a sample of companies in Great Britain, and despite its shortcomings out of which the most obvious is including those companies with a large difference in average agency costs, the same template was used to calculate the agency costs in Croatian companies. Because of the noticeable limitation, the model was partly modified, and the basic and target group of companies was introduced in the analysis. The assumption that the base group of companies has no agency costs, because they are owned by a small number of owners, should provide the estimate of the same within the target group. After the calculation of selected variables of the model, and after the dependency evaluation of independent variables of a model with the dependent one, the hypotheses about agency costs on the impact of capital structure on agency costs of companies, as well as the existence of agency costs in companies where the ownership structure is dispersed on multiple owners and interest groups were confirmed.

Keywords: agency costs; ownership and capital structure; financial leverage (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2011
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