Impact of Long-term Debt on Overinvestment Problem of Agency

Advances in Mathematical Finance and Applications

مقاله 7، دوره 2، شماره 4، اسفند 2017، صفحه 93-105   

نوع مقاله: Research Paper

شناسه دیجیتال (DOI): 10.22034/amfa.2017.536269

نویسندگان

Azade Shahab¹؛ Mohammad Mohammad Zaheri²؛ Nahid Asadi^{* 3}

¹Department of Econommic Development and Planning, Bu-Ali Sina University, Hamedan, Iran

²Department of Management, Lorestan University, Khoram Abad, Iran

³Department of Management, Khomein Branch, Islamic Azad University, Khomein, Iran.

چکیده

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 elimination sampling. 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. 

کلیدواژه‌ها

Long-Term Debt؛ Financial Leverage؛ Overinvestment of the agency؛ Tehran Stock Exchange

مراجع

[1] Savaedi, Z., Ahmadi, M. R., Investigating the Impact of overinvestment and underinvestment on return on assets (ROA) index of Tehran Stock of listed Companies, National Conference on New Achievements in Accounting and Management, 2015.

[2] Tehrani R., Hassar Zadeh R., The effect of free cash flows and restrictions on financing on over-investment and under-investment, Journal of Accounting Studies, 2009, 1, P.50-67.

[3] Khardyar S., Askari A., financial reporting quality and investment efficiency, The First National Economy Conference, 2014.

[4] Sadeghzadeh A., Bigger Impact of Investing on Investors' Response to the Custody Cost of the Cash, The First International Conference on the New Paradigms of Business and Organizational and smart Management, 2016.

[5] Ghadamyari N., Eftekhari F., Khorasan, Relationship between Capital Structure and Over-Investment, Third International Conference on Modern Research in Management, Economics and Accounting, 2015.

[6] Hasani, M., Meysami, M., Impact of Maturity of Debt and Financial Reporting Quality on Under-Investment and Over-Investment, Seventh International Conference on Economics and Management, 2016.

[7] Pakiseh, K., Bashiri Joybari, M., Impact of False Valuation on Investment Decisions of Companies listed in Tehran Stoke Exchange, Journal of Financing and assets Management, 2016, 1(3), P.14-23.

[8] Moradi, J., Rahmanian, A., Long-term and Over-investment in cash and investment costs in terms of agency theory, Quarterly Journal of Empirical Financial Accounting, 2013, 40, P.2-12.

[9] Valipour, H., Khorram, A., Effectiveness of the Company's Guiding System Mechanisms to Reduce the Cost of Agency, Journal of Management Accounting, 2011, 8, P. 23-45.

[10] Arab Mazar-e-Yasdi, M., Baghomian, R. K., Hakhani, F., Relationship between Debt-Assets Combinations and Liquidity Risk of Banks in Iran, Faculty of Humanities, 2008.

[11] Ferrer R., Vicente J., Benítez, R., Interest rate changes and stock returns: A European multi-country study with wavelets, International Review of Economics & Finance, 2016, 4, P.1-12.

[12] Richardson, S., Over-investment of free cash flow, Review of Accounting Studies, 2006, 11, P.159-189.

[13] Chen, SH., Wang, K., Li., Xiaoxue, Product Market Competition; Ultimate Controlling Structure and Related Party Transactions, China, Journal of Accounting Research, 2012, 5, P. 293-306.

[14] Huang, W., Jiang F., Liu, Z., Zhang M., Agency cost, top executives' overconfidence, and investment-cash flow sensitivity — Evidence from listed companies in China, Pacific-Basin Finance Journal, 2011, 19, P. 261-277.

[15] D Mello, R., Miranda, M., long term debt and over investment agency problem, 2009.

[16] Guariglia, A., Yang, J., A balancing act: Managing financial constraints and agency costs to minimize investment inefficiency in the Chinese market, Journal of Corporate Finance, 2016, 36, P.111-130.

[17] Li, Concerning the financing of the debt and corporate investment behavior, Journal of Mathematical Economics, 2010, 46(5) P.633-651.