Impact of Long-term Debt on Overinvestment Problem of Agency

Subject Areas : Financial Mathematics

Azade Shahab ¹ , Mohammad Mohammad Zaheri ² , Nahid Asadi ^{3 *}

1 - Department of Econommic Development and Planning, Bu-Ali Sina University, Hamedan, Iran
2 - Department of Management, Lorestan University, Khoram Abad, Iran
3 - Department of Management, Khomein Branch, Islamic Azad University, Khomein, Iran.

Received: 2017-07-04 Accepted : 2017-12-01 Published : 2017-12-01

Keywords: Tehran Stock Exchange, Financial Leverage, Long-Term Debt, Overinvestment of the agency,

Abstract :

Business units are always faced with investment opportunities and need to make logical decisions on an optimal investment. Indeed, the investment of each business unit should be done with regard to the resource constraints and its effectiveness through the criteria for evaluating the projects including the net present value (NPV). The paper aims to investigate the effect of long-term debt on the overinvestment of agency problem. The present research is applied in terms of its purpose and it is descriptive and correlation in terms of nature. The statistical population of the study was the financial information related to the performance of 540 companies listed in Tehran Stock Exchange during 2011 and 2015. 152 companies were selected by the systematic eliminationsampling. The data collection was carried out using the Tadbir Pardaz and Rahavard-e-Novin software as well as the Research Management, Islamic Studies and Development of Stock Exchange Organization and Stock Exchange Organization websites. The research data are hybrid. The data were analyzed using the F-Limer and Hausman tests using Eviews9 software. Based on the results, the pre-investment declined by 36% at a significant level less than 0.05% while increasing long-term debt by 1%, and the overinvestment reduces 69% by a one-percent increase in the financial leverage.

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