Agency costs, capital structure and corporate performance: A survey of Croatian, Slovenian and Czech listed companies

Abstract

Purpose: The aim of this study is, first to describe and explore equity agency costs; second, to explore the impact of capital structure on equity agency costs; and finally, to examine the impact of agency costs on the performance of listed companies. Methodology: Panel data regression has been used for research data analysis. Results: The results of the work show that equity to capital and long-term debt to capital variables have a positive and significant impact on the agency costs of listed companies in the Republic of Croatia. The study indicates that long-term debt to capital variable has a negative and significant impact on the agency costs of listed companies in Slovenia and the Czech Republic. Furthermore, we find evidence to suggest that changes in agency costs have little or no effect on the performance of listed companies in Croatia, Slovenia and the Czech Republic. The findings suggest that the capital structure decisions affect the agency costs of listed companies and the agency costs may affect corporate performance. Conclusion: This study makes a number of contributions to the agency costs literature. It presents the first study of agency costs of listed companies in Croatia, Slovenia and the Czech Republic that uses panel data, a technique that enables us to isolate both cross section and time series effects. The present paper can help managers to better understand equity agency costs and their effects on corporate performance.

Keywords

• agency problems
• agency costs
• sales-to-asset ratio
• capital structure
• corporate performance