Impact of Long-term Debt on Overinvestment Problem of Agency

Business units are always faced with investment opportunities and need to make logical decisions on an optimal investment. Indeed, the investment of each business unit should be done with regard to the resource constraints and its effectiveness through the criteria for evaluating the projects including the net present value (NPV). The paper aims to investigate the effect of long-term debt on the overinvestment of agency problem. The present research is applied in terms of its purpose and it is descriptive and correlation in terms of nature. The statistical population of the study was the financial information related to the performance of ۵۴۰ companies listed in Tehran Stock Exchange during ۲۰۱۱ and ۲۰۱۵. ۱۵۲ companies were selected by the systematic elimination sampling. The data collection was carried out using the Tadbir Pardaz and Rahavard-e-Novin software as well as the Research Management, Islamic Studies and Development of Stock Exchange Organization and Stock Exchange Organization websites. The research data are hybrid. The data were analyzed using the F-Limer and Hausman tests using Eviews۹ software. Based on the results, the pre-investment declined by ۳۶% at a significant level less than ۰.۰۵% while increasing long-term debt by ۱%, and the overinvestment reduces ۶۹% by a one-percent increase in the financial leverage. 

Keywords:

Long-Term Debt , Financial Leverage , Overinvestment of the agency , Tehran Stock Exchange