Capital Structure and Firm Efficiency

Dimitris Margaritis · Maria Psillaki

321 citations0/0 files storedJournal of Business Finance &amp Accounting

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Corporate Finance and Governance Financial Analysis and Corporate Governance Efficiency Analysis Using DEA

Abstract

Abstract: This paper investigates the relationship between firm efficiency and leverage. We consider both the effect of leverage on firm performance as well as the reverse causality relationship. In particular, we address the following questions: Does higher leverage lead to better firm performance? Does efficiency exert a significant effect on leverage over and above that of traditional financial measures of capital structure? Is the effect of efficiency on leverage similar across different capital structures? What is the signalling role of efficiency to creditors or investors? Using a sample of 12,240 New Zealand firms we find evidence supporting the theoretical predictions of the Jensen and Meckling (1976) agency cost model. Efficiency measured as the distance from the industry's ‘best practice’ production frontier is positively related to leverage over the entire range of observed data. The frontier is constructed using the non‐parametric Data Envelopment Analysis (DEA) method. Using quantile regression analysis we show that the reverse causality effect of efficiency on leverage is positive at low to mid‐leverage levels and negative at high leverage ratios. Firm size also has a non‐monotonic effect on leverage: negative at low debt ratios and positive at mid to high debt ratios. The effect of tangibles and profitability on leverage is positive while intangibles and other assets are negatively related to leverage.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 321 citations exist upstream.

References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1984Corporate financing and investment decisions when firms have information that investors do not have 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1958The Cost of Capital, Corporation Finance and the Theory of Investment 1977Determinants of corporate borrowing 1996Agency costs of free cash flow, corporate finance, and takeovers 2008The cost of capital, corporation finance and the theory of investment 1984The Capital Structure Puzzle

Cited by

2008Managerial Entrenchment and Corporate Social Performance 2015Determinants of capital structure: an empirical study of firms in Iran 2018Determinants of capital structure and firm financial performance—A PLS-SEM approach: Evidence from Malaysia and Indonesia 2014Agency theory, capital structure and firm performance: some Indian evidence 2019Capital structure and firm performance: evidence of Germany under IFRS adoption

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.