WHAT ABOUT THE DEBT GOVERNANCE STRUCTURE AND STOCKHOLDERS’ INTERESTS IN TRANSITION MARKET? PERSPECTIVES FROM EGYPT

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Abstract

This study examines the relationship between debt governance structure at three levels (high, medium and low) and firm’s performance in the stock market. The debt structure classifies debt into short-term debt and long-term debt at each debt level. The results indicate that in the high debt firms, the short-term debt helps improve the PE ratio. As for the medium debt firms, the results show also that the short-term debt helps improve the market value added. The results of the low debt firms are similar to those of the high debt firms indicating that the short-term debt can be used to improve the PE ratio. The regression characteristics show that with the exception of medium debt in the PE equation, the explanatory power for the other performance measures are relatively high which indicates a relatively high degree of association between both types of debt with the MB and MVA respectively. The overall results show that (1) debt governance structure in Egypt is characterized by the dominance of short-term debt, (2) the latter can be used to improve the firm’s performance in the stock market, which shows that the association of interests between short-term debtholders and stockholders is highly likely, and (3) the negative relationships of long-term debt indicate to the presence of an agency problems between long-term debtholders and stockholders. The contribution of this paper is that it shows the extent to which either type of debt can be used to address the debtholder- stockholders agency relationships.

Keywords: Agency Relationship, Debt Structure, Stock Market Performance, Egypt

How to cite this paper: Eldomiaty, T. I. (2005). What about the debt governance structure and stockholders’ interests in transition market? Perspectives from Egypt. Corporate Ownership & Control, 3(1), 52-70. https://doi.org/10.22495/cocv3i1p5