Investigating the Effect of Financial Constraints and Different Levels of Agency Cost on Investment Efficiency

Subject Areas : Financial Mathematics

Mahdi  Agah ¹ (Department of Management and Accounting, Farahan Branch, Islamic Azad University, Farahan, Iran)
Hossein  Malekpoor ² (Department of Economic Sciences, Faculty of Management and Economic, Tarbiat Modares University, Tehran, Iran)
Arman  Bagheri ³ (Department of Financial Management, Faculty of Business Management, Qom University, Qom, Iran)

Received: 2017-12-18 Accepted : 2017-12-18 Published : 2017-12-01

Keywords: Agency costs, Investment Efficiency, financial constraints,

Abstract :

This research attempts to investigate the effect of financial constraints and different levels of agency costs on the investment efficiency of companies in Iran. Following the design of the financial risk assessment indexes, the transaction information was collected from the Stock Exchange in the five-year period of 2011-2015. The statistical sample consists of 128 companies selected by sampling method based on Cochran formula in which totally obtained 640 year-firm data. Linear regression and correlation were used to investigate the hypotheses of the research. Also Eviews software was used to analyse the data and test the hypotheses. What is summarized in the overall conclusion of the research hypothesis test is that financial constraints are effective on investment performance based on the indicators (kz) and (ww), as well as the various levels of agency costs, including high and low agency costs effect on investment efficiency.

References:

[1] Arsalan, O., Florackis, C., Ozkan, A., The Role of Cash Holdings in Reducing Investment-Cash Flow Sensitivity: Evidence from a Financial Crisis Period in an Emerging Market. Emerging Markets, 2006, 7(1), P.320 -338.

[2] Biddle, G., Hilary, G., Verdi, R.S., How does financial reporting quality relate to investment efficiency?, Journal of Accounting and Economics, 2009,4(8), P.112-131.

[3] Dey A, Corporate Governance and Agency Conflict, Journal of Accounting Research, 2008, 46(5), P.1143-1181.

[4] Guariglia, A., Yang, J., A balancing act: Managingfinancial constraints and agency costs to minimize investment inefficiency in the Chinese market, Journal of Corporate Finance, Journal of Corporate Finance, 2015, 36(5), P.111–130.

[5] Izadiya N., Rasaiyan, A., Some Organizational Guidance Tools and Economic and Financial Performance Measurement Criteria, Journal of Accounting Knowledge, 2010, 1(1), P.72-53.

[6] Jensen, M., Meckling, W., Theory of the firm: managerial behaviour, agency costs and ownership structure, Journal of Financial Economics,1976, 3 (4), P.305-360.

[7] Jensen, M. C, Agency costs of free cash flow, Corporate finance and takeovers, American Economic Review,1986, 76 (2), P.323-329.

[8] Kashanpoor M., Neginjad, B., Investigating the effect of financial constraints on cash flow sensitivity, Accounting Research, 2009,1(2), P.72-93.

[9] Myers, S. C., The Capital Structure Puzzle, Journal of Finance,1984, 39(3), P. 575-592.

[10] Roberts J., McNulty T, Stiles P., Beyond Agency Conceptions of the Work of the Non-Executive Director: Creating Accountability in the Boardroom, British Journal of Management, 2005, 1(6), P. 5–26.

[11] Rocca M. L., Cariola A., Elvira T. L. R., Overinvestment and underinvestment problems: Determining Factors, Consequences and Solution, 2005, 7(9), P.967-1010.

[12] Verdi, R., Financial reporting quality and investment efficiency. Unpublished PhD Dissertation, Faculties of the University of Pennsylvania in Partial Fulfilment, OR Working paper, 2006. 8(2), P.152-157.

[13] Wang F., Corporate Liquidity and Equity Retunes, Working Paper, 2005.

[14] Yang, J., Jiang, Y., Accounting information quality, free cash flow and overinvestment: A Chinese study, The Business Review, 2008, 11 (1), P.159-166.