engleski

Agency Problems and Debt Financing

The main objective of this paper is to examine correlation between agency costs measured by identifed approximation of variables and debt fnancing as one of the corporate governance mechanisms for reducing these costs. In a modern corporation where ownership is separated from management, many benefts are viewed primarily through an increasing efciency. The issue of the separation of ownership and management is related to potential conflict between principals (stakeholders) and agents (managers). Theoretically possible solution to the agency problem is defned through the agency theory. The most signifcant problem are agency costs. Agency costs do not have a directly quantifable value, therefore the approximation of measures such as asset turnover ratio and operating expense ratio (company’s operating expenses divided by its revenues) will be used in this research paper. According to the previous empirical studies, between asset turnover ratio and debt fnancing positive correlation was determined, while negative correlation was determent between operating expense ratio and debt fnancing. This research was conducted on Croatian companies whose shares have been listed on the Zagreb Stock Exchange continuously from January 2009 to December 2017. In the analysis, from a total of 154 companies that shares have been listed on the Zagreb Stock Exchange, 31 most actively traded shares measured by the average monthly trading rank in the observed period were taken. Results obtained in this research indicate that debt fnancing is signifcant corporate governance mechanism for reducing agency costs where the direction obtained from the correlation is in line with the theoretical expectation.

Agency costs, Corporate Governance, Capital market, Financial leverage, Debt structure

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