Capital Structure Choice when Managers are in Control: Entrenchment versus Efficiency / Walter Novaes, Luigi Zingales.

Format:

Book

Author/Creator:

Novaes, Walter.

Contributor:

National Bureau of Economic Research.

Zingales, Luigi.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5384.

NBER working paper series no. w5384

Language:

English

Subjects (All):

Corporate debt.

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Capital Structure Choice when Managers are in Control

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1995.

Cambridge, Massachussetts : National Bureau of Economic Research, [1995]

Summary:

Recent capital structure theories have emphasized the role of debt in minimizing the agency costs that arise from the separation between ownership and control. In this paper we argue that capital structure choices themselves are affected by the same agency problem. We show that, in general, the shareholders' and the manager's capital structure choices differ not only in their levels, but also in their sensitivities to the cost of financial distress and taxes. We argue that only the managerial perspective can explain why firms are generally reluctant to issue equity, why they issue it only following a stock price run-up, and why Corporate America recently deleveraged under the same tax system that supposedly generated the increase in leverage in the 1980s.

Notes:

Print version record

December 1995.