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Corporate Governance and Capital Structure Dynamics

The Journal of finance (New York), 2012-06, Vol.67 (3), p.803-848 [Peer Reviewed Journal]

2012 The American Finance Association ;2012 the American Finance Association ;Copyright Blackwell Publishers Inc. Jun 2012 ;ISSN: 0022-1082 ;EISSN: 1540-6261 ;DOI: 10.1111/j.1540-6261.2012.01735.x ;CODEN: JLFIAN

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Title:
Corporate Governance and Capital Structure Dynamics
Author: MORELLEC, ERWAN ; NIKOLOV, BORIS ; SCHÜRHOFF, NORMAN
Subjects: Capital structure ; Cash flow ; Conflict management ; Conflicts of interest ; Corporate governance ; Cost estimation models ; Debt ; Debt management ; Dynamics ; Financial leverage ; Financial management ; Leverage ; Managers ; Modeling ; Shareholders ; Stockholders ; Studies ; Trade-off ; Tradeoff analysis
Is Part Of: The Journal of finance (New York), 2012-06, Vol.67 (3), p.803-848
Description: We develop a dynamic tradeoff model to examine the importance of manager—shareholder conflicts in capital structure choice. In the model, firms face taxation, refinancing costs, and liquidation costs. Managers own a fraction of the firms' equity, capture part of the free cash flow to equity as private benefits, and have control over financing decisions. Using data on leverage choices and the model's predictions for different statistical moments of leverage, we find that agency costs of 1.5% of equity value on average are sufficient to resolve the low-leverage puzzle and to explain the dynamics of leverage ratios. Our estimates also reveal that agency costs vary significantly across firms and correlate with commonly used proxies for corporate governance.
Publisher: Malden, USA: Blackwell Publishing Inc
Language: English
Identifier: ISSN: 0022-1082
EISSN: 1540-6261
DOI: 10.1111/j.1540-6261.2012.01735.x
CODEN: JLFIAN
Source: Alma/SFX Local Collection

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Corporate Governance and Capital Structure Dynamics

2012 The American Finance Association ;2012 the American Finance Association ;Copyright Blackwell Publishers Inc. Jun 2012 ;ISSN: 0022-1082 ;EISSN: 1540-6261 ;DOI: 10.1111/j.1540-6261.2012.01735.x ;CODEN: JLFIAN

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