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This study aims to examine the relation between long-term debt and internationalization in the presence of the agency costs of debt and business risk.

Sample firms consist of 517 non-financial listed firms in Malaysia, with 4,197 firm-year observations from the year 2000 to 2014. This study uses panel data regressions and a series of robustness tests to examine the hypotheses.

The results show that multinational corporations (MNCs) are more likely to sustain less long-term debt than domestic corporations (DCs) to mitigate the costs related to agency problem and firm risk. Meanwhile, foreign-based MNCs maintain less long-term debt than local-based firms, and the finding is more significant at a higher degree of internationalization. Robustness tests confirm the negative relations.

The findings indicate that the ongoing debate on the debt financing puzzle can be explained by internationalization. Moreover, the findings suggest that in addition to the systematic differences between MNCs and DCs, studies on the debt financing and internationalization should also account for the systematic differences among MNCs such as the local-based MNCs, foreign-based MNCs and DCs that later expand their business operations abroad.

MNCs have to be responsive to the diverse institutional environments as they diversify their business operations geographically. When the adverse effects of internationalization outweigh the benefits, MNCs could use the long-term debt financing decision to mitigate the costs of doing business abroad. This is because debt financing is also a primary concern in the corporate financial decisions for the maximization of shareholders’ wealth.

This study contributes to the debt financing literature from the international perspective by providing evidence from an emerging market. In addition, this study highlights the importance of recognizing firms by their firm-specific characteristics, such as internationalization, given the systematic differences among firms.

Since Jensen and Meckling [1976] first introduced the concept of an agency cost of debt, most research on the agency cost of debt has centered on who bears these costs. Jensen and Meckling's original contention was that if bondholders have rational expectations, then the owner‐manager should bear the agency costs of debt. The alternative to this explanation was first offered by Barnea, Haugen and Senbet [1981] who claimed that because of the effects of agency costs on the supply of debt, these costs would be borne by the bondholders. Roberts and Viscione [1984] extend the analysis of Barnea, Haugen, and Senbet by including costly tax avoidance on personal and corporate levels to show that the agency costs of debt are shared by bondholders and owner‐managers.

This paper aims to extend the empirical literature on the determinants of agency costs by using a large sample of UK listed firms.

The paper investigates the impact of several corporate governance mechanisms on two alternative proxies for agency costs, namely the ratio of total sales to total assets (asset turnover) and the ratio of selling, general and administrative expenses to total sales (SG&A). The analysis depends on a cross‐sectional regression approach.

The results reveal that the capital structure characteristics of firms, namely bank debt and debt maturity, constitute important corporate governance devices for UK companies. Also, managerial ownership, managerial compensation and ownership concentration are strongly associated with agency costs. Finally, the results suggest that the impact exerted by specific internal governance mechanisms on agency costs varies with firms' growth opportunities.

The analysis adds to the empirical literature on agency costs by providing useful insights into how debt maturity and managerial compensation can help mitigate agency‐related problems. It also highlights important interactions between internal governance mechanisms and firm growth opportunities.

We examine the empirical relationship between direct equity agency costs measures and corporate governance control mechanisms to control equity agency costs. We measure the three direct agency cost proxies commonly used in the literature: the operating expense; asset turnover; and selling, general, and administrative (SGA) ratios. Internal corporate governance control mechanisms examined are inside ownership (IO), outside ownership concentration (OC), the size of the board of directors (BODs), and the composition of the BODs (proportion of nonexecutive (NE) directors and separation of chief executive officer (CEO) and board chair). The external corporate governance control mechanism examined is the size of bank debt (short-term debt). Univariate and multivariate tests reveal that the only statistically significant relationship between corporate governance control mechanisms and direct equity agency cost measures is the negative relationship between the proportion of IO and direct agency costs. The asset utilization ratio (asset turnover) ratio is the best proxy for direct equity agency costs and can be useful for event studies of announcement period excess returns.

The purpose of the present paper is to examine the trade-off relationship between managerial ownership and corporate debts and whether this relationship is moderated by ownership structure and corporate tax rates, particularly in a transition and emerging market whose unique institutional characteristics considerably differ from those prevailing both in the West and East markets.

This research is semi-empirical in terms of method and practical in terms of purpose. The authors test their hypotheses by using simultaneous equations system methodology with two- and three-stages least squares regression (2SLS and 3SLS) and panel data technics on a sample of 952 listed companies on the Tehran Stock Exchange during 2011-2018.

The findings indicate that, contrary to the current line of research, there is no trade-off relationship between managerial ownership and debt concerning the reduction of agency costs. Likewise, the study finds no convincing evidence that either the controlling shareholder or the corporate tax rate could influence or moderate this interrelationship. The conjecture lies in the fact that the fundamental environmental variations between the Tehran Stock Exchange and the institutional assumptions underpinning the Western models have led to the formation of such unexpected results.

The implications drawn from this study are constrained by two primary limitations. First, the present study is conducted in an Iranian setting; therefore, the data used for the study only contain companies listed on the Tehran Stock Exchange. The utilization of listed companies on the Tehran Stock Exchange is likely to affect the generalizability of the study in an international context. Second, in this study, we were unable to extend the sample time period because of some major deficiencies in the Tehran Stock Exchange library and its supplementary software. The usage of an extended time period could have provided more generalizable results. However, extended time period, per se, may impair the validity of the results as well.

Because the fundamental institutional assumptions underpinning the Western and even East Asia capital structure models are not valid in the institutional environment of Iran, the findings of this study could provide substantial implications for the understanding of agency costs and capital structure literature. These significant institutional and ownership differences are the factors affecting firms’ leverage and capital choice decisions. Indeed, this study has laid some groundwork upon which a more detailed evaluation of the Iranian firms’ capital structure could be based. In addition, the examination of such relations may provide the ground for sound decision-making by various interested users of financial and accounting information.

This article analyzes the moderating role of investment opportunities, business risk and agency costs in shaping the nexus between excess cash and corporate performance.

This research uses dynamic regression models (two-step system generalized method of moments) to analyze the data related to 200 Turkish companies listed on Borsa Istanbul (BIST) for the years between 2009 and 2020.

The findings indicate that when excess cash increases, the financial performance deteriorates only for firms with lower investments compared to firms with more investments. In addition, investment contributes to better financial performance for firms that hold cash surplus, whereas the influence of investment is insignificant for firms that have insufficient cash. Agency costs of equity exacerbate the adverse impact of excess cash on financial performance while agency costs of debt mitigate this effect. Excess cash reduces the financial performance of highly leveraged firms. However, this impact becomes insignificant when debt ratio decreases. The findings also show that investment has more significant role than business risk in building the precautionary motive to hold cash.

The findings of this article are limited to the Turkish market. Future research is still needed in other emerging markets to compare the results and reveal more about the effect of excess cash on firm performance, and how other factors can change this effect.

The findings verify the increased significance of excess cash in the presence of investment opportunities and difficulties in accessing external funds. Nevertheless, the role of the equity related agency problem in reducing the benefits of cash surplus confirms the necessity of policies that support corporate governance, especially in emerging markets.

This article, according to the knowledge of author, is the first to examine the role of agency costs associated with debt and equity, and the compound effect of investment opportunities and business risk on the nexus between excess internal funds and corporate financial performance in emerging markets.

This study examines whether investment horizons among institutional investors affect cash dividend payout policies among firms. We use institutional ownership volatility and persistence to measure institutional ownership stability. We find that cash dividend payout ratios are negatively correlated to volatility and positively correlated to persistence. The results suggest that firms with stable institutional investors encourage managers to pay cash dividends rather than invest in suboptimal projects or perquisite consumption. Furthermore, this study tests whether the impact of institutional ownership stability on cash dividend policy matters in firms with greater agency costs. This study finds that stable institutional ownership increases cash dividends for firms with severe or slight agency problems. These findings suggest that institutional ownership stability plays an important role in monitoring and hence in determining cash dividends.

Recent studies have shown that the level of insider holdings and firm value are related in a nonlinear manner. Other studies find that the level of debt in a firm's capital structure declines with increases in its growth options. The principal‐agent relationship maintains that an increase in the equity stake of insiders reduces the agency costs of issuing debt. Extension of this premise suggests, however, that the agency costs of debt rise with extremely high levels of insider holdings as insiders consume perquisites to the detriment of outside stakeholders, revealing a nonlinear relation attributable to agency costs. We examine the relation between debt financing and insider holdings for 1894 firms at the end of 1989. In keeping with the hypothesized relation, the cross‐sectional regressions of leverage on insider holdings reveal significant nonlinearities. Leverage first rises with insider holdings and then declines. The positive relation between leverage and insider holdings returns as inside ownership approaches 100 percent. These results hold for two different measures of leverage and after controlling for industry differences in leverage, tax shields, firm size, growth options, and earnings or return volatility. The results also hold when regulated firms are excluded from the analysis.

Purpose: In reality, financial decisions are made under conditions of asymmetric information that results in either favorable or adverse selection. As far as financial decisions affect growth of the firm, the latter must also be affected by either favorable or adverse selection. Therefore, the core objective of this chapter is to examine the determinants of each financial decision and the effects on growth of the firm under conditions of information asymmetry.

Design/Methodology/Approach: This chapter uses data for the non-financial firms listed in S&P 500. The data cover quarterly periods from 1989 to 2014. The statistical tests include linearity, fixed, and random effects and normality. The generalized method of moments estimation method is employed in order to examine the relative significance and contribution of each financial decision on growth of the firm, respectively. Standard and proposed proxies of information asymmetry are discussed.

Findings: The results conclude that there is a variation in the impact of financial variables on growth of the firm at high and low levels of information asymmetry especially regarding investment and financing decisions. A similar picture emerges in the cases of firm size and industry effects. In addition, corporate dividen d policy has a similar effect on firm growth across all asymmetric levels. These findings prove that information asymmetry plays a vital role in the relationship between corporate financial decisions and growth of the firm. Finally, the results contribute to the vast literature on the estimation of information asymmetry by demonstrating that the classical and standard proxies for information asymmetry are not consistent in terms of the ability to differentiate between favorable or adverse selection (which corresponds to low and high level of information asymmetry).

Originality/Value: This chapter contributes to the related literature in two ways. First, this chapter offers updated empirical evidence on the way that financing, investment, and dividends decisions are made under conditions of favorable and adverse selection. Other related studies deal with each decision separately. Second, the study offers new proxies for measuring information asymmetry in order to reach robust estimates of the effects of financial decisions on growth of the firm under conditions of agency problems.

Unlike previous studies on capital structure decisions, the purpose of this paper is to focus on US real estate investment trusts (REITs) in order to find out the main determinants of capital structure choice for real estate companies and in order to verify if they are related to factors similar to those affecting the decisions of public firms in other sectors.

Using a methodology similar to Rajan and Zingales, a sample of 119 listed REITs with different investment strategies and in different property sectors was analyzed. The analysis is carried out in order to determine the basic factors underpinning the capital structures by selecting financial items and ratios related with leverage (such as asset size, profitability ratios, tangibility of assets, growth opportunities, operating risk and geographical diversification of investments).

Results show that REITs follow a pecking order theory of financing since more profitable firms are less levered and REITs with more growth opportunities have higher leverage ratios. The tangibility of assets turns out to be positively correlated with leverage, while REITs whose operating risk is high prefer a lower financial risk and consequently a lower gearing. Finally, it is not clear how size affects leverage decisions and more diversified REITs appear to be riskier.

The research also addresses the issue of asymmetric information and the debt‐equity choice for REITs sampled on the basis of their size, highlighting differences with other business sectors.