Impact of Firm Capital Structure Decisions on Debt Agency Problem: Evidence for Pakistan

Agency problem is highly discussed topic in financial literature, but mostly focused on one aspect of agency cost and agency problem of debt is still debatable. Present study determines mechanisms to protect the interests of debtholders in Pakistani firms. By analyzing top 100 capitalized Pakistani manufacturing firms and by applying fixed effect and random effect techniques of generalized least square regression, study aims to check the effectiveness of capital structure decisions of firm on agency cost of debt. Study also incorporates the effect of managerial ownership and ownership concentration on the debt agency cost while keeping the impact of dividend policy constant. Moreover study finds whether monitoring of banks is effective in agency cost of debt. Study suggests that managerial ownership, concentrated ownership and Increased level of debt in firm reduces the agency cost of debt.