Abstract
The agency theory suggests that loan can reduce the agency problem of shareholders-managers (enhance the agency problem of shareholders-lenders) and increase (decrease) the performance of a firm. This article analyzes the impact of firm leverage on the performance of firms with high and low agency costs. Using the ordinary least squares (OLS) method and the 2008-2017 data of 52 firms whose stock certificates are processed in the service sector in Istanbul Stock Exchange; it was determined that leverage had a negative impact on firm profitability and that impact was higher for firms with higher agency costs (firms with higher growth opportunities and fewer tangible assets) and lower for firms with agency costs of free cash flows (firms with higher free cash flows).
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