CAN DEBT AND DIVIDEND POLICIES SUBSTITUTE INSIDER OWNERSHIP IN CONTROLLING EQUITY AGENCY CONFLICT?
The separation of ownership and control in modem corporations creates two parties namely the managers who are the agents and the ()timers who are the principals. Usually. the ago?ts do »iol work in the interests of the principals, which leads to the equity agency conflict. Agency theory suggests se...
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[Yogyakarta] : Universitas Gadjah Mada
2002
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| Summary: | The separation of ownership and control in modem corporations creates two parties namely the managers who are the agents and the ()timers who are the principals. Usually. the ago?ts do »iol work in the interests of the principals, which leads to the equity agency conflict. Agency theory suggests several trays of reducing this agency conflict which include increased insider ownership, debt policy and dividend policy among others. Several researches on these three policies have revealed an interdependent relationship anumg them. This study builds mr this relationship to test whether the financial policies � debt and dividend policies CtIli be substitutes for increased insider ownership in an effort to control agency corrilict.
Using a simultaneous equation analysis on cross sectional Jinn clam the results indicate that sub.stinuability between debt and insider ownership occurs. but no such relationship was jOund between dividend and insider ownership. This is supported by the non-monotonic relationship benveen dividend policy and insider ownership. The findings cilso point to the .fact that in a bid to control equity agency conflict. the use of debt exacerbates the debt agency conflict.
Keywords: agency conflict: debt policy: dividend policy: insider ownership: simultaneous equation |
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