UMM Logo

Universitas Muhammadiyah Malang


Free Download Journals Directory


Nature and Science

Empirical Study of Capital Structure on Agency Costs in Chinese Listed Firms

Hongxia Li
School of Management, Harbin University of Science and Technology, Harbin, Heilongjiang 150080, China; ** Aston Business School, Aston University, Birmingham, B4 7ET, UK.lhx_2002@hotmail.com, ming_cui@hotmail.com.
Abstract :

This study examines the impact of capital structure on agency costs in 211 non-financial Chinese listed firms for the period 1999-2001. There are two main findings. (1) Firms with high debt to asset ratio have high ratio of annual sales to total assetsand high ratio of return-on-equity. If a firm has a high debt to asset ratio, creditors are much more concerned about the payment of interest and repayment of principal and will have incentives to monitor the firm. Thus, a capital structure with high debt decreases agency costs. (2) Positive and significant correlation is identified between ownership concentration and the return-on-equity ratio. This is because the largest shareholders have a strong interest in firm performance and therefore a high ability to reduce agency costs. Our empirical results further illustrate that firms have inclination of refinancing through stock market and harm small shareholders’ interest. [Nature and Science 2003;1(1):12-20].

Keywords :
capital structure; agency costs; corporate governance

Date Deposited : 10 Jan 2011 14:48

Last Modified : 10 Jan 2011 17:32

Official URL: http://www.sciencepub.org/nature/0101

Volume 1, Number 1, November 2003 , ISSN 1545-0740

Download:
Full Text Original
Abstract : pdf doc