Download or read book Capital Structure Managerial Incentives and Corporate Governance written by Christian M. Pfeil and published by Peter Lang Gmbh, Internationaler Verlag Der Wissenschaften. This book was released on 2002 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: What factors determine a firm's financing decision? Informational economics and contract theory have contributed a great deal to answer this question. This book contains three essays that further contribute to this strand of literature with the focus on theories that view capital structure as a disciplining instrument for a self-interested management. Some of the existing theories abstract from other disciplining devices such as ordinary incentive wages to justify debt as a mean to mitigate a moral hazard problem between managers and owners of a firm. Two of the models presented here turn to the question of whether debt can play a role as an incentive device when other incentive mechanisms are available as well. A third model revisits the signaling literature on capital structure in the light of new empirical evidence. All models are embedded into a corporate governance framework that allows to set the conclusions into a broader perspective.

Download or read book Managerial Incentives and Capital Structure written by Larry Lang and published by . This book was released on 1987 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Empirical Results on Managerial Incentives and Capital Structure written by Nicholas J. Gonedes and published by . This book was released on 1987 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Managerial Incentives Capital Structure and Corporate Governance written by Xinping Li and published by . This book was released on 2008 with total page 284 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Stock Options Managerial Incentives and Capital Structure written by Richard D. MacMinn and published by . This book was released on 1994 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Effect of Managerial Incentives to Bear Risk on Corporate Capital Structure and R D Investment written by Jouahn Nam and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study we use estimates of the sensitivities of managers' portfolios to stock return volatility and stock price to directly test the relationship between managerial incentives to bear risk and two important corporate decisions. We find that as the sensitivity of managers' stock option portfolios to stock return volatility increases firms tend to choose higher debt ratios and make higher levels of Ramp;D investment. These results are even stronger in a sub sample of firms with relatively low outside monitoring. For these firms managerial incentives to bear risk play a particularly pivotal role in determining leverage and Ramp;D investment.

Download or read book The Impact of Asymmetric Information Between Managers and Investors on Managerial Incentives and Optimal Compensation Contracts written by Marcel A. Priebsch and published by . This book was released on 2004 with total page 176 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Managerial Incentives and Capital Management written by Bengt Holmström and published by . This book was released on 1984 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Effects of the Agency Cost of Debt and Managerial Risk Aversion on Capital Structure written by Yilei Zhang and published by . This book was released on 2013 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the influence of managerial incentives on the capital structure decision using a sample of all-equity firms. Managerial risk-taking incentives may encourage financial risk taking hence greater leverage. On the other hand, increasing a manager's incentive to take risk increases the agency cost of debt and therefore lowers debt capacity. I provide evidence supporting the second effect in all-equity firms where the potential asset substitution is more severe. I show that CEO's pay-for-performance sensitivity (delta) and the sensitivity of CEO wealth to stock volatility (vega) are higher in all-equity firms than those in matched levered firms. In addition, the incentive compensation in all-equity firms encourages greater risk-taking activities than levered firms, suggesting a negative relation between leverage and risk taking incentives. I also find that the likelihood of having an all-equity capital structure increases in the risk taking incentives from managerial equity-based compensation. This remains after controlling for endogeneity, which may arise if overcoming managerial risk aversion is particularly important for these all-equity firms. Finally, I find that equity-based compensation and incentives decrease upon firms' switching to levered firms from all-equity firms, indicating the change of compensation structure is associated with the change of capital structure.

Download or read book Operational Decisions Capital Structure and Managerial Compensation written by Xiaodong Xu and published by . This book was released on 2005 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: While firm growth critically depends on financing ability and access to external capital, the operations management literature seldom considers the effects of financial constraints on the firms' operational decisions. Another critical assumption in traditional operations models is that corporate managers always act in the firm owners' best interests. Managers are, however, agents of the owners of the company, whose interests are often not aligned with those of equity-holders or debt-holders; hence, managers may make major decisions that are suboptimal from the firm owners' point of view. This paper builds on a news vendor model to make optimal production decisions in the presence of financial constraints and managerial incentives. We explore the relationship between operating conditions and financial leverage and observe that financial leverage can increase as margins reach either low or high extremes. We also provide some empirical support for this observation. We further extend our model to consider the effects of agency costs on the firm's production decision and debt choice by including performance-based bonuses in the manager's compensation. Our analyses show how managerial incentives may drive a manager to deviate from firm-optimal decisions and that low-margin producers face significant risk from this agency cost while high-margin producers face relatively low risk in using such compensation.

Download or read book Executive Compensation and Capital Structure written by Hernan Ortiz-Molina and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I examine how CEO compensation is related to firms' capital structures. My tests address the simultaneity of these decisions and distinguish between debt types with different theoretical implications for managerial incentives. Pay-performance sensitivity decreases in straight-debt leverage, but is higher in firms with convertible debt. Furthermore, stock option policy is the component of CEO pay that is most sensitive to differences in capital structure. The results strongly support the hypothesis that firms trade-off shareholder-manager incentive alignment in order to mitigate shareholder-bondholder conflicts of interest. The hypothesis that debt reduces manager-shareholder conflicts can explain some but not all of the results.

Download or read book Managerial Objectives Capital Structure and the Provision of Worker Incentives written by Gerald Garvey and published by . This book was released on 1990 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Capital Structure Implication of Managerial Risk investment Incentives Under Hostile Takeover Threats written by Joseph C. Kang and published by . This book was released on 1992 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Financing Decisions when Managers are Risk Averse written by Katharina Lewellen and published by . This book was released on 2003 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the impact of financing decisions onrisk-averse managers. Leverage raises stock volatility, driving a wedge between the cost of debt to shareholders and the cost to undiversified, risk-averse managers. I quantify these "volatility costs" of debt and examine their impact on financing decisions. The paper finds: (1) the volatility costs of debt can be large, particularly if the CEO owns in-the-money options; (2) higher option ownership tends to increase, not decrease, the volatility costs of debt; (3) a stock price increase typically reduces managerial preference for leverage, consistent with prior evidence on security issues. Empirically, I estimate the volatility costs of debt for a large sample of U.S. firms and test whether these costs affect financing decisions. I find evidence that volatility costs affect both the level of and short-term changes in debt. Further, a profit model of security issues suggests that managerial preferences help explain a firm's choice between debt and equity. Keywords: Executive Compensation, Stock Options, Risk Incentives, Leverage. JEL Classifications: G3, G32, M52.

Download or read book Capital Structure Compensation and Incentives written by Alan V. S. Douglas and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article illustrates an incentive-aligning role of debt in the presence of optimal compensation contracts. Owing to information asymmetry, value-maximizing compensation contracts allow managerial rents following high investment outcomes. The manager has an incentive to increase these rents by choosing investments that generate greater information asymmetry. An aptly chosen debt level mitigates this incentive, because investments that generate greater information asymmetry have more volatile outcomes. The greater volatility would make the debt risky, causing the shareholders to focus on high outcomes and therefore compensation contracts that reduce managerial rents. At the optimum, the manager avoids opportunistic investments, and the shareholders offer value-maximizing compensation contracts. Empirically, the analysis predicts a negative relationship between leverage and market-to-book that is reversed at extreme market-to-book ratios, a negative relationship between leverage and profitability, a negative relationship between leverage and pay-for-performance, and a positive relationship between pay-for-performance and investment opportunities.

Download or read book A Model of Dynamic Compensation and Capital Structure written by Zhiguo He and published by . This book was released on 2010 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the optimal compensation problem between shareholders and the agent in a general cash-flow setup, and offers a framework to quantitatively assess the impact of agency problems. Under the structural model of capital structure studied in Leland (1994), we find that the debt-overhang effect on the endogenous managerial incentives lowers the optimal leverage. Consistent with the data, our model delivers a negative relation between pay-performance sensitivity and firm size, and the interaction between debt-overhang and agency issue leads smaller firms to take less leverage relative to their larger peers. During financial distress, a firm's cash-flow becomes more sensitive to underlying performance shocks due to debt-overhang. The implications on credit spreads and debt covenants are also considered.

Download or read book Human Capital Intensive Firms written by Yiming Qian and published by . This book was released on 2003 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: I study the incentives of nonmanagement key personnel in human-capital-intensive firms. I show that their compensation structure and hence their incentives depend on the firm's capital structure and top management compensation. The feasible set of renegotiation-proof contracts decreases as debt rises. Debt leads to inferior risk-sharing even if investments are efficient in equilibrium. Therefore, the optimal debt level decreases with the human-capital intensity of the firm. I find strong empirical evidence that there is a negative relation between leverage and human-capital intensity. Moreover, the more specific the firm's assets, the stronger becomes this negative relation.