Debt impact on the costs of agency conflicts, considering companies’ ownership structure

The article attempts to determine whether the increase in debt burden reduces the costs of agency conflicts in Russian public companies with various types of ownership. The subject is the relationship between the share of debt in the capital structure and the costs of agency conflicts. The main goal is to develop the ways to reduce the costs of agency conflicts in Russian companies by managing the capital structure, taking into account the ownership structure of these companies. To achieve this goal, the authors present the results of an empirical study to identify the impact of debt in Russian public companies on reducing the costs of agency conflicts, depending on the type of ownership structure. New results obtained during an empirical study of 109 Russian public companies for the period from 2016 to 2020 prove the influence of company's capital structure on the level of agency costs. Thus, it has been proven that debt has a significant negative impact on the costs of agency conflicts in companies with state, managerial and institutional types of ownership. The concentration of managerial ownership is also of high importance. The authors argue that debt is more effective at low (<25%) concentration of management ownership. In addition, the study proves a non-linear relationship between debt and the costs of agency conflicts. Accordingly, in order to increase the effectiveness of this instrument, it is necessary to find the optimal capital structure (for electric power companies, it is about 37%, while for other industries – about 25%). Finally, the authors offer recommendations regarding the management of capital structure in Russian companies in order to reduce the costs of agency conflicts. These results can be used in joint-stock companies by both shareholders and management to reduce the consequences of agency problem in companies.

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