The relationship between capital structure and firm performance: The moderating role of agency cost
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Feb 28, 2025
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Abstract
This research investigates the relationship between capital structure and financial performance, with a particular focus on the moderating influence of agency costs. It analyzes the impact of capital structure on financial outcomes through the perspective of agency costs. Data was obtained from non-financial firms listed on the Indonesia Stock Exchange (IDX) between 2020 and 2022. Capital structure is represented using metrics such as the debt-to-asset ratio and debt-to-market capitalization, while financial performance is measured through indicators like return on assets (ROA), Tobin’s Q, and earnings per share (EPS). The results reveal that, although capital structure can negatively influence financial performance, agency costs can serve as a positive moderating factor. By considering various performance metrics, the study highlights the significance of adopting a holistic approach to analyzing capital structure. The research aims to provide a deeper understanding of the dynamic interplay between capital structure and financial performance
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How to Cite
Pranata, R., & Nugroho, V. (2025). The relationship between capital structure and firm performance: The moderating role of agency cost . Enrichment : Journal of Management, 14(6), 1016-1025. https://doi.org/10.35335/enrichment.v14i6.2175
References
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Brealey, R. A., Myers, S. C., & Allen, Franklin. (2017). Principles of corporate finance. McGraw-Hill Education.
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Eldomiaty, T. I. (2008). Determinants of corporate capital structure: Evidence from an emerging economy. International Journal of Commerce and Management, 17(1–2), 25–43. https://doi.org/10.1108/10569210710774730
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Nachane, D. M. (2006). Econometrics: Theoretical Foundations and Empirical Perspectives. Journal of Quantitative Economics, 4, 151–154. https://link.springer.com/article/10.1007/BF03546454
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Ngatno, Apriatni, E. P., & Youlianto, A. (2021). Moderating effects of corporate governance mechanism on the relation between capital structure and firm performance. Cogent Business and Management, 8(1). https://doi.org/10.1080/23311975.2020.1866822
Pham, H. S. T., & Tran, H. T. (2020). CSR disclosure and firm performance: The mediating role of corporate reputation and moderating role of CEO integrity. Journal of Business Research, 120, 127–136. https://doi.org/10.1016/j.jbusres.2020.08.002
Porter, D. C., & Gujarati, D. N. (2009). Basic Econometrics (5th ed.). McGraw-Hill. https://doi.org/https://books.google.co.id/books/about/Basic_Econometrics.html?id=6l1CPgAACAAJ&redir_esc=y
Ross, S., Westerfield, R., Jaffe, J., & Jordan, B. (2022). Corporate Finance (13th ed.). McGraw-Hill Education.
Sdiq, S. R., & Abdullah, H. A. (2022). Examining the effect of agency cost on capital structure-financial performance nexus: empirical evidence for emerging market. Cogent Economics and Finance, 10(1). https://doi.org/10.1080/23322039.2022.2148364
Seth, H., Chadha, S., Sharma, S. K., & Ruparel, N. (2020). Exploring predictors of working capital management efficiency and their influence on firm performance: an integrated DEA-SEM approach. Benchmarking, 28(4), 1120–1145. https://doi.org/10.1108/BIJ-05-2020-0251
Wooldridge, J. M. (2015). Introductory Econometrics: A Modern Approach (6th ed). Cengage Learning.
Wooldridge, Jeffrey. M. (2010). Econometric analysis of cross section and panel data (2nd ed.). MIT Press.
Abor, J. (2005). The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana. Journal of Risk Finance, 6(5), 438–445. https://doi.org/10.1108/15265940510633505
Adolf A. Berle. (1932). The Modern Corporation and Private Property. https://ia801509.us.archive.org/32/items/in.ernet.dli.2015.216028/2015.216028.The-Modern.pdf
Ahmed, A. M., Nugraha, D. P., & Hágen, I. (2023). The Relationship between Capital Structure and Firm Performance: The Moderating Role of Agency Cost. https://doi.org/10.3390/risks
Ang, J. S., Cole, R. A., & Lin, J. W. (2000). Agency Costs and Ownership Structure. http://ssrn.com/abstract=981268Electroniccopyavailableat:https://ssrn.com/abstract=981268
Brealey, R. A., Myers, S. C., & Allen, Franklin. (2017). Principles of corporate finance. McGraw-Hill Education.
Dawar, V. (2014). Agency theory, capital structure and firm performance: some Indian evidence. Managerial Finance, 40(12), 1190–1206. https://doi.org/10.1108/MF-10-2013-0275
Eldomiaty, T. I. (2008). Determinants of corporate capital structure: Evidence from an emerging economy. International Journal of Commerce and Management, 17(1–2), 25–43. https://doi.org/10.1108/10569210710774730
Hoang, L. D., Tuan, T. M., van Tue Nha, P., Long, T. P., & Phuong, T. T. (2019). Impact of agency costs on firm performance: Evidence from Vietnam. Organizations and Markets in Emerging Economies, 10(2), 294–309. https://doi.org/10.15388/omee.2019.10.15
Ibhagui, O. W., & Olokoyo, F. O. (2018). Leverage and firm performance: New evidence on the role of firm size. North American Journal of Economics and Finance, 45, 57–82. https://doi.org/10.1016/j.najef.2018.02.002
Irawan, D., & Kusuma, N. (2019). PENGARUH STRUKTUR MODAL DAN UKURAN PERUSAHAAN TERHADAP NILAI PERUSAHAAN. Jurnal Aktual STIE Trisna Negara, 17(1), 66–81.
Jensen, M. C. (1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. In American Economic Review (Vol. 76, Issue 2). http://papers.ssrn.com/abstract=99580.
Jensen, M. C., & Meckling, W. H. (1976). THEORY OF THE FIRM: MANAGERIAL BEHAVIOR, AGENCY COSTS AND OWNERSHIP STRUCTURE. In Journal of Financial Economics (Vol. 3). Q North-Holland Publishing Company.
Jensen, M. C., Meckling, W. H., Benston, G., Canes, M., Henderson, D., Leffler, K., Long, J., Smith, C., Thompson, R., Watts, R., & Zimmerman, J. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. In Journal of Financial Economics (Issue 4). Harvard University Press. http://hupress.harvard.edu/catalog/JENTHF.html
Kraus, A., & Litzenberger, R. H. (1973). A State-Preference Model of Optimal Financial Leverage. In Source: The Journal of Finance (Vol. 28, Issue 4).
Mangkona, S., Fadhilah, N., & Nurfan, H. M. (2023). Pengaruh Kebijakan Dividen dan Struktur Modal Terhadap Nilai Perusahaan Manufaktur di Bursa Efek Indonesia. Amsir Management Journal, 4(1), 11–21. https://doi.org/10.56341/amj.v4i1.243
Margaretha, F., & Retta Ginting. (2016). FAKTOR-FAKTOR YANG MEMPENGARUHI STRUKTUR MODAL PADA PERUSAHAAN BUMN DI INDONESIA. Jurnal Ekonomi & Bisnis, 21(2), 175–190.
McCall, J. Joseph. (1982). The Economics of information and uncertainty. University of Chicago Press.
Mehmood, M. (2021). Agency Costs and Performance of UK Universities. Public Organiz Rev, 21, 187–204. https://doi.org/https://doi.org/10.1007/s11115-020-00483-4
Modigliani, F., Merton, & Miller, H. (1958). The Cost of Capital, Corporation Finance and the Theory of Investment. In The American Economic Review (Vol. 48, Issue 3).
Myers, S. C. (1984). CAPITAL STRUCTURE PUZZLE. The Journal of Finance, 39(3). https://doi.org/10.1111/j.1540-6261.1984.tb03646.x
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13. https://doi.org/https://papers.ssrn.com/sol3/papers.cfm?abstract_id=274547
Nachane, D. M. (2006). Econometrics: Theoretical Foundations and Empirical Perspectives. Journal of Quantitative Economics, 4, 151–154. https://link.springer.com/article/10.1007/BF03546454
Newbold, Paul., Carlson, W. L., & Thorne, Betty. (2013). Statistics for business and economics. Pearson.
Ngatno, Apriatni, E. P., & Youlianto, A. (2021). Moderating effects of corporate governance mechanism on the relation between capital structure and firm performance. Cogent Business and Management, 8(1). https://doi.org/10.1080/23311975.2020.1866822
Pham, H. S. T., & Tran, H. T. (2020). CSR disclosure and firm performance: The mediating role of corporate reputation and moderating role of CEO integrity. Journal of Business Research, 120, 127–136. https://doi.org/10.1016/j.jbusres.2020.08.002
Porter, D. C., & Gujarati, D. N. (2009). Basic Econometrics (5th ed.). McGraw-Hill. https://doi.org/https://books.google.co.id/books/about/Basic_Econometrics.html?id=6l1CPgAACAAJ&redir_esc=y
Ross, S., Westerfield, R., Jaffe, J., & Jordan, B. (2022). Corporate Finance (13th ed.). McGraw-Hill Education.
Sdiq, S. R., & Abdullah, H. A. (2022). Examining the effect of agency cost on capital structure-financial performance nexus: empirical evidence for emerging market. Cogent Economics and Finance, 10(1). https://doi.org/10.1080/23322039.2022.2148364
Seth, H., Chadha, S., Sharma, S. K., & Ruparel, N. (2020). Exploring predictors of working capital management efficiency and their influence on firm performance: an integrated DEA-SEM approach. Benchmarking, 28(4), 1120–1145. https://doi.org/10.1108/BIJ-05-2020-0251
Wooldridge, J. M. (2015). Introductory Econometrics: A Modern Approach (6th ed). Cengage Learning.
Wooldridge, Jeffrey. M. (2010). Econometric analysis of cross section and panel data (2nd ed.). MIT Press.