DO CAPITAL STRUCTURE HAS AN EFFECT ON AGENCY COSTS? EVIDENCE FROM KENYAN LISTED FIRMS

Abstract

The main purpose of the article was to determine whether the capital structure has an effect on agency costs. The agency theory was used as the central theoretical analysis of the research. The study used 34 listed firms in the Nairobi Securities Exchange being firms that revealed consistency in the market during the period 2006‐2012 giving a total of 238 firm‐year observation. The study used a linear regression model to analyze data with the support of SPSS software. The results indicated that capital structure was negatively and significantly correlated to agency cost (r = ‐0.464; p<0.01) at a 1% confidence interval level. The study findings will be of valuable assistance to shareholders of listed firms in the Nairobi Securities Exchange in maintaining the leverage at a controlled level. Keywords: Capital Structure, Agency Cost, Agency Theory