Capital Structure and Agency Cost: Study of Conglomerate Companies Listed on the Indonesian Stock Exchange

Abstract

This study examined the effect of capital structure on agency cost. Population of this research is conglomerate companies listed on the Indonesian Stock Exchange, amounting to 29 companies. The study period is 2007-2012. Agency cost is measured using the ratio of operating expenses to sales and capital structure measured by the ratio of liabilities and equity. Analysis of the data used in this study is multiple regression. Institutional ownership, size and return on assets (ROA) is a variable control. The results showed that, capital structure, institutional ownership, size and ROA simultaneously positive and significant impact on the agency cost. Partial capital structure and significant positive effect on agency cost. Instititional ownership but not significant positive effect on agency cost. Size positive but not significant effect on agency cost. ROA and significant negative effect on agency cost.

Keywords: Agency Problem, Agency Cost, Capital Structure