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Debt Financing, Agency Cost and Firm Performance: Evidence from India

Author

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  • Krishna Dayal Pandey
  • Tarak Nath Sahu
Abstract
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 firms’ profitability measured by ‘return on equity’. 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 2009–2016, 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 ‘general and administrative expenses’. 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.

Suggested Citation

  • Krishna Dayal Pandey & Tarak Nath Sahu, 2019. "Debt Financing, Agency Cost and Firm Performance: Evidence from India," Vision, , vol. 23(3), pages 267-274, September.
    • Handle: RePEc:sae:vision:v:23:y:2019:i:3:p:267-274
    DOI: 10.1177/0972262919859203
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    3. Krishna Dayal Pandey & Tarak Nath Sahu, 2021. "Ownership Concentration and Agency Crises in Indian Manufacturing Firms," Business Perspectives and Research, , vol. 9(1), pages 128-143, January.
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    5. Amanj Mohamed Ahmed & Nabard Abdallah Sharif & Muhammad Nawzad Ali & István Hágen, 2023. "Effect of Firm Size on the Association between Capital Structure and Profitability," Sustainability, MDPI, vol. 15(14), pages 1-17, July.
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    7. Geeta Duppati & Rachita Gulati & Neha Matlani & Ploypailin Kijkasiwat, 2023. "Institutional Ownership, Capital Structure and Performance of SMEs in China," South Asian Journal of Macroeconomics and Public Finance, , vol. 12(2), pages 135-159, December.
    8. M N, Nikhil & S Shenoy, Sandeep & Chakraborty, Suman & B M, Lithin, 2023. "Is the Nexus Between Capital Structure and Firm Performance Asymmetric? An Emerging Market Perspective," MPRA Paper 119669, University Library of Munich, Germany, revised 17 Nov 2023.
    9. Ritu Pareek & Krishna Dayal Pandey & Tarak Nath Sahu, 2019. "Corporate Governance, Firms’ Characteristics and Environmental Performance Disclosure Practices of Indian Companies," Indian Journal of Corporate Governance, , vol. 12(2), pages 142-155, December.
    10. Amanj Mohamed Ahmed & Deni Pandu Nugraha & István Hágen, 2023. "The Relationship between Capital Structure and Firm Performance: The Moderating Role of Agency Cost," Risks, MDPI, vol. 11(6), pages 1-17, June.

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