Debt Financing, Agency Cost and Firm Performance: Evidence from India
Krishna Dayal Pandey and
Tarak Nath Sahu
Vision, 2019, vol. 23, issue 3, 267-274
This empirical investigation attempts to enquire into the relationship among debt financing, agency cost and performance of Indian manufacturing firms. The study tries to document the impact of debt financing on firm performance in two different phases of panel data estimations. In the first phase, the study enquires the effect of debt on firmsâ€™ profitability measured by â€˜return on equityâ€™. The second phase tries to empirically explain the reason behind such impact by introducing agency cost. Considering the manufacturing firms traded in the BSE 200 Index from 2009â€“2016, the study documents a significant and negative effect of debt on firm performance. The magnitude of debt is also found to be positively affecting the agency cost measured by â€˜general and administrative expensesâ€™. So the negative effect of debt on firm performance is reinforced and justified as debt is also found to elevate the agency costs for the firms.
Keywords: Capital Structure; Leverage; Agency Cost; Firm Performance; Panel Data Analysis (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:vision:v:23:y:2019:i:3:p:267-274
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