THE MODERATING ROLE OF FINANCIAL LEVERAGE IN THE RELATIONSHIP BETWEEN MANAGER-SHAREHOLDER AGENCY COST AND FINANCIAL PERFORMANCE: A STUDY ON BIST TEXTILE LEATHER INDEX

Abstract

This study examines the moderating role of the use of financial leverage in the relationship between agency cost and financial performance in companies operating in the BIST Textile Leather index during the period 2000-2023. In the study, firm size and age variables are used as control variables; ROA, ROE, and Tobin's Q are preferred as financial performance indicators. The analyses are conducted with BA-OLS and CUP-FMOLS estimation methods and the second-generation process is followed. The findings reveal that financial leverage, firm size and age variables have a positive impact on ROA, ROE, and Tobin's Q, while the manager-shareholder agency costs have a negative impact on these performance indicators. Moreover, the interaction between financial leverage and agency costs has a negative effect on ROA and ROE, and a positive effect on Tobin's Q. The results suggest that financial leverage alone may not be a sufficient policy instrument to reduce agency costs and improve financial performance.