Debt level and equity agency costs: Evidence from public listed companies in China

Abstract

This paper examines whether the level of debt financing affects the equity agency costs between shareholders and management and the one between controlling shareholders and minority shareholders. We use empirical research method to analyze a panel data sample of A share listed companies in Shanghai and Shenzhen Stock Exchange from year 2007 to 2009 and finds that companies with proper financing structure are more likely to have less equity agency costs. To be accurate, increasing liabilities, especially current liabilities, to some extent would suppress equity agency costs between shareholders and management, whereas the influence of long-time debt on equity agency costs is not very clear and we didn't find enough evidence to support the influence of debt financing on equity agency costs between controlling shareholders and minority shareholders. All the results show that in China, debt financing still has a certain influence on equity agency costs between shareholders and management, but cannot ease the interest conflicts between controlling shareholders and minority shareholders effectively.