Studying the Association between Agency Costs and Corporate Financial Health: Empirical Evidence from Tehran Stock Exchange

Based on theoretical finance and accounting literature, distress firm's managers manipulate their financial information and real activities in order to hide and postpone bad news about financial distress situation. In fact, in these companies, management efforts are on track to provide personal benefits rather than putting in place to improving financial situation of the company. Therefore, this research aims to investigate the association between agency costs and corporate financial health. 120 publicly listed firms from Tehran Stock Exchange for the period 1382 to 1395 (Iranian Calendar) are selected as final data set. The research hypotheses were tested by using multivariate linear regression and Comparison of means. The results based on Altman adjusted z-score (1968) indicate that agency costs derived from the separation of ownership and management is one of the factors affecting the financial distress and the agency costs in healthy firms is lower than unhealthy companies. But the results based on Olson's financial health index (1980) indicate that there is no relationship between the agency costs and the level of financial health and there is no significant difference between the agency costs in healthy and non-healthy companies.