Examining the effect of agency cost on capital structure-financial performance nexus: empirical evidence for emerging market

Figures & data

Table 1. Study sample firms

Code	Name	Established	SP	BV
IBSD	Baghdad Soft Drinks	1989	4.00	2.48
IICM	Iraqi Company for Manufacturing and Trading Carton	1978	0.92	−0.52
NHFI	National Household Furniture Industry	1986	1.71	1.22
IKHC	Al-Khazer for Construction Materials	1989	2.30	1.93
IMOS	The modern sewing company	1988	5.90	1.74
INCP	National Chemical and Plastic company	1962	1.94	0.71
IMCI	Modern Chemical Industries Company	1978	100	26.32
IITC	Iraqi Industry for Tufted Carpets and Floor Coverings Co	1989	15.0	5.98
IKLV	Al Kindi Co. for Production of Veterinary Vaccines & Drugs	1990	1.39	1.20
IRMC	Ready Made Clothes and General Trading Co	1976	5.40	0.63
IBPM	Baghdad for Packing Materials	1962	2.00	0.99

Table 2. Definition of variables

Variable	Type	Measure	Abbr.	Definition
Financial performance	Response	Market to book value	MBV	Market capitalization over book value of assets
		Return on assets	ROA	EBET/Total assets
Capital structure	Explanatory	Debit ratio	DR	Total debt/ Total assets
		Equity ratio	ER	Total equity/ Total assets
Agency cost	Independent & Moderating	Operating expenses ratio	EXR	Operating expense/ total sales
		Asset utilization ratio	AUR	Annual sales /total assets
Total assets	Control variable	Firm size	SIZE	Natural logarithm of total assets

Table 3. Summary statistics of variables

	ROA	MBV	DR	ER	EXR	AUR
Mean	−0.017	3.078	0.295	1.238	0.361	1.200
Median	0.015	1.805	0.211	0.788	0.236	1.185
Maximum	1.158	24.00	2.815	88.716	3.196	2.134
Minimum	−4.086	−2.451	0.005	−0.388	0.005	−1.221
Std. Dev.	0.354	3.400	0.348	6.451	0.441	0.292
Skewness	−8.062	2.437	3.446	13.444	3.588	−2.603
Kurtosis	95.329	11.870	20.285	182.789	19.849	27.43
Jarque-Bera	68,447.3	798.2	2698.2	257,491.1	2613.2	4863.4
Probability	0.000	0.000	0.000	0.000	0.000	0.000
Sum	−3.162	575.532	55.212	231.552	67.526	224.404
Sum Sq. Dev.	23.312	2150.08	22.46	7740.04	36.14	15.868
Obs.	187	187	187	187	187	187

Table 4. Pesaran-Yamagata’s homogeneity test

Groups	Test	Stat	p-value
ALL COMPANIES	∆	3.472	0.000
	∆ adj.	1.146	0.000

Table 5. Cross-section Independence test

groups	Test	ROA	MBV	DR	ER	EXR	AUR	SIZE
COMPANIES	CD-test	4.44	4.95	3.90	2.04	3.51	4.78	8.22
	P-value	0.000	0.000	0.001	0.041	0.000	0.000	0.000

Table 6. CADF and CIPS panel unit root test

Variables	I	CIPS	CADF
ROA	Level	−2.168	−2.723
	∆	−2.631**	−2.631*
MBV	Level	−1.388	−1.387
	∆	−2.631**	−2.631
DR	Level	−2.184	−2.184
	∆	−4.584***	−4.372**
ER	Level	−2.358	−2.358
	∆	−3.202***	−3.202*
EXR	Level	−1.275	−1.275
	∆	−2.269*	−2.197*
AUR	Level	−0.853	−0.853
	∆	−6.285***	−6.285***

∆ represents the first differences, ***, ** and * indicate statistical significance at 1%, 5% and 10% level, respectively.

Table 7. Bootstrap panel cointegration tests

		PANEL	v-stat.	rho-stat.	pp-stat.	ADF-stat.	GROUP	rho-stat.	pp-stat.	ADF-stat.
Model 1	ROA DR ER EXR SIZE	Stat.	−3.375	2.258	−9.524	−3.710	Stat.	3.144	−13.10	−2.553
		Prob.	0.999	0.988	0.000	0.000	Prob.	0.999	0.000	0.005
		Stat.	−3.498	2.196	−8.773	−3.848
		Prob.	0.999	0.986	0.000	0.000
Model 2	MBV DR ER EXR SIZE	Stat.	−2.472	1.441	−6.803	−3.167	Stat.	3.047	−7.117	−2.582
		Prob.	0.993	0.925	0.000	0.000	Prob.	0.999	0.000	0.006
		Stat.	−2.856	1.677	−6.903	−2.332
		Prob.	0.998	0.953	0.000	0.009
Model 3	ROA DR ER AUR SIZE	Stat.	−3.493	2.014	−5.273	−3.534	Stat.	3.727	−7.875	−1.906
		Prob.	1.000	0.978	0.000	0.000	Prob.	1.000	0.000	0.028
		Stat.	−3.527	2.585	−5.389	−2.229
		Prob.	1.000	0.995	0.000	0.013
Model 4	MBV DR ER AUR SIZE	Stat.	−2.271	1.391	−7.321	−2.611	Stat.	2.976	−7.606	−2.474
		Prob.	0.988	0.918	0.000	0.005	Prob.	0.999	0.000	0.007
		Stat.	−3.245	1.183	−8.951	−2.180
		Prob.	0.999	0.882	0.000	0.015

Table 8. PMG long-run estimation results

M	Depend.		DR	ER	EXR	DR*EXR	ER*EXR	SIZE
1	d(ROA)	coef.	−3.688***	−2.324**	−5.528***	4.756***	2.294**	223.93***
		t-stat.	−3.510	−2.219	−6.757	5.818	2.522	4.452
2	d(MBV)	coef.	0.462***	0.996***	1.021***	−0.277**	−0.878***	−35.00***
		t-stat.	2.810	4.361	6.863	−2.374	−4.473	−5.507
			DR	ER	AUR	DR*AUR	ER*AUR	SIZE
3	d(ROA)	coef.	−2.872***	1.263*	−2.786***	1.546***	−0.689	122.08***
		t-stat.	−5.391	2.018	−3.27	3.833	−1.479	8.016
4	d(MBV)	coef.	0.104	0.54	1.404***	−0.092	−0.814***	−25.49***
		t-stat.	0.564	1.622	6.966	−0.622	−2.808	−5.094

***, ** and * indicate statistical significance at 1%, 5% and 10% level, respectively.

Table 9. Model selection and evaluation

Model	LOGL	AIC*	BIC	HQ	Specification
1	−148.428	2.630	4.125	3.236	ARDL (1, 1, 1, 1, 1, 1,1)
2	89.793	−0.077	1.418	0.529	ARDL (1, 1, 1, 1, 1, 1,1)
3	−131.830	2.566	4.260	3.253	ARDL (1, 1, 1, 1, 1, 1,1)
4	75.769	0.082	1.577	0.689	ARDL (1, 1, 1, 1, 1, 1,1)

Sample: 2004 – 2020, included observations: 176

Figure 1. Panel ARDL model graph for model 1.

Figure 2. Panel ARDL model graph for model 2.

Figure 3. Panel ARDL model graph for model 3.

Figure 4. Panel ARDL model graph for model 4.