Open AccessAgency Costs And Corporate Financial Policies: A Simultaneous Equations Approach
Author(s) -
Yong H. Kim,
Jong C. Rhim,
Jun Gyu Kang
Publication year - 2011
Publication title -
journal of business and economics research
Language(s) - English
Resource type - Journals
eISSN - 2157-8893
pISSN - 1542-4448
DOI - 10.19030/jber.v3i1.2738
Subject(s) - pension , capital structure , economics , dividend policy , dividend , leverage (statistics) , corporate finance , agency cost , finance , agency (philosophy) , business , accounting , corporate governance , shareholder , sociology , debt , social science , machine learning , computer science
Financial economists have devoted great attention to corporate financial policies, such as the firm’s capital structure. It is also understood that these policies are not determined independently, but jointly with other corporate policies such as dividend policy and ownership structure. The purpose of this paper is to incorporate the pension funding decision into this policy mix. The design and administration of a firm’s pension fund affects the firm because of the size and risks of the pension fund. The degree of funding of a defined benefit plan affects the value and risk of a company’s common shares. This paper simultaneously explains leverage, dividend policy, ownership structure, and pension funding using several independent variables that, based on agency theory, should affect these policies. The results are significant and reinforce the notion of simultaneous determination of corporate policies.