Do Decision Makers' Debt-risk Attitudes Affect the Agency Costs of Debt?



Current Agriculture, Food & Resource Issues

G. Hailu, E. W. Goddard and S. R. Jeffrey

where φ is the standard normal density function. Note that the marginal effects sum to
zero (Greene, 2000). The marginal effect for binary explanatory variables is estimated as
the difference between
Prob(BI = j) | x = 1 and Prob(BI = j) | x = 0.

Survey Results

Attitudes toward Long-term Borrowing

The test for differences in attitude toward long-term borrowing between managers and
directors of agribusiness co-operatives is conducted based on the information gathered
using TpB procedures. For each individual, the index for attitudes toward long-term
borrowing is constructed as in table 1. Both a t-test and a Mann-Whitney test are then
applied to assess if there are any differences in attitudes between managers and directors
of co-operative firms (table 4). Results from both tests suggest there are statistically
significant mean differences between managers and directors in attitudes toward
increasing borrowing. This may indicate that directors tend to have more favourable
attitudes toward a higher debt-to-equity ratio. This is consistent with evidence from co-
operatives in Portugal showing that managers generally tend to adopt management
practices that reduce debt-to-equity ratios while members do the opposite (Rebelo, Caldas
and Matulich, 2003). In the United States, Kenkel, Holcomb and Ac Bol (2003) have also
found that managers and board members differ significantly in their attitudes toward
value-added activities and new generation co-operatives on several issues. The results are
also consistent with the principal-agent theory proposition that managers prefer moderate
or low levels of corporate debt as it is in their interest to reduce the chances of company
bankruptcy (Firth, 1995).

Table 4 Tests for Differing Attitudes toward Additional Long-term Borrowing (N=30)

T-test for equality of means

Nonparametric test

Mean difference (manager-director)

-1.923

Mann-Whitney U

57.5

t-statistics

-2.424

Wilcoxon W

162.5

Degrees of freedom

28

Z

-2.269

P-value

0.022

P-value

0.023

Determinants of Attitudes toward

Increased Borrowing, Subjective Norm and PBC

One of the objectives of this study is to investigate factors that influence DMs’ attitudes
toward long-term borrowing and their behavioural intention to borrow more in order to
finance business expansion. In particular, are DM attitudes toward long-term borrowing
and their behavioural intentions to approve additional borrowing related to their personal
characteristics and social-psychological factors? First, factors that are believed to affect
attitudes, subjective norms and perceived behavioural control are investigated using
multiple regressions. Second, the impacts of attitude, subjective norm, perceived

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