Abstract
Agency theory proposes that managerial incentives, growth opportunities and debt are associated with firm performance. Nevertheless, previous findings remain inconclusive regarding whether agency conflicts are more severe in smaller or larger firms. Previous research has also paid limited attention to the role of debt in managerial responses to growth opportunities across firm sizes, particularly in emerging markets. This study therefore examines firm performance across different firm-size categories and investigates the roles of growth opportunities and debt in managerial decision-making. The analysis draws on 6,296 quarterly observations from firms in ten nonfinancial sectors listed on the Indonesia Stock Exchange from 2023 to 2025. Based on total-asset quartiles, the sample is divided into micro, small, medium and large firms. Three dummy-variable regression models are used to examine performance differences across firm sizes and changes associated with the inclusion of growth opportunities and debt. The results show that micro-sized firms have higher firm performance than larger firms, indicating closer alignment between managerial and shareholder interests. Growth opportunities have a negative association with firm performance in the model without debt, which may reflect managerial risk avoidance. When debt is included, the coefficient of growth opportunities becomes positive and debt is also positively associated with firm performance. These results indicate that creditor monitoring may limit managerial discretion and support more effective investment decisions. By considering firm size, growth opportunities and debt within a single empirical framework, this study provides additional evidence on agency conflicts in an emerging-market setting.
Keywords: Debt Monitoring, Growth Opportunities, Incentive Alignment, Risk Avoidance, Risk Taking.