Capital Structure and Agency Theory: Empirical Evidence From Listed Companies in Tehran Stock Exchange

Based on the agency theory, Interests of the directors, shareholders and creditors directly are affected by corporate financing policies. In modern financing literature, corporate governance and agency conflicts are considered as determinants of firm's capital structure. In relation to agency conflicts and capital structure, there are two types of evidence, including shareholders and creditors conflicts (related to debt) and managers and shareholders conflict (related to equity). In this study, the effect of capital structure on agency costs by using the structural equation modeling approach has been examined. To measure the agency costs, it has been used the observable variables such as the return on assets ratio, asset utilization ratio, discretionary expenses ratio and Tobin's Q. Also, it is used leverage ratio as independent variable to measure capital structure. In addition, collateral value of assets and growth opportunities are entered to the model as control variables. Among the accepted companies, 68 ones in Tehran Stock Exchange were selected for statistical samples from 2003 to 2014 in order to attain the research purposes. The results show that capital structure has a significant and negative effect on agency costs.