Empirical Test of Balancing Model of Agency Costs, Contracting Model of Agency Theory, Collateral, and Growth Hypothesis in Indonesian Capital Market

Abstract

The paper analyzes the relationship between managerial ownership with leverage policy and dividend policy (balancing model of agency theory) and interdependency of dividend and leverage (contracting model of agency theory). The research also test collateral and growth hypothesis. Leverage and dividend policy variables used in this study are already excluded outside shareholders interest. Results show that managerial ownership as self bonding and self monitoring in controlling agency conflict concern on the balancing model of agency cost. Agency theory variables (dividend and leverage) partially explain interdependency between leverage and dividend policies. Relationships between dividend influenced leverage significantly explained by contracting model of dividend but relationship between leverage influenced dividend fail explained by balancing model of agency cost. The results also support collateral and perquisites hypotheses. In general agency costs that occurred in Indonesia are agency costs of debt.

Keywords: Agency, debt, dividend, managerial, ownership, cost

JEL Classification: G32