MODERATING EFFECT OF AGENCY COST ON RELATIONSHIP BETWEEN CAPITAL STRUCTURE AND VALUE OF LISTED FIRMS IN NIGERIA

Abstract

The main objective of the study is to examine the Moderating Effect of Agency Cost on Capital Structure and Value of Listed Firms in Nigeria. The study used an ex post facto design and analyzed data from 20 out of 38 Nigerian manufacturing firms from 2018 to 2023. It employed descriptive and inferential statistics with data sourced from financial statements and annual reports, analyzed using STATA 14. The study compared Pooled Ordinary Least Squares (POLS), Fixed Effects Model (FEM), and Random Effects Model (REM). While all models were significant, the Hausman test favored REM, but the Breusch and Pagan test ultimately suggested that the POLS model was more robust than REM. The regression analysis reveals long-term debt significantly increases firm's value, Short-term debt reduces firm value, and larger firms significantly have a higher value, higher audit fees with long-term debt significantly improves firm value, and Audit fees moderately mitigates the negative effects of short-term debt. Audit fees has a modest significant effect on firm value as firm size increases. The study recommended that Firms should optimize their long-term debt levels to enhance their value, while carefully managing associated risks, Firms should minimize the use of short-term debt to avoid financial risks that could negatively impact their value, Firms should aim for optimal growth that supports efficiency and risk management, avoiding the pitfalls of becoming too large, Firms should invest in higher-quality agency cost when leveraging long- term debt to enhance credibility and firm value, Firms should balance audit investments with debt management strategies to ensure sustained value and Large firms should continue to prioritize high-quality audits to safeguard their value.