Impact of Managerial Entrenchment on Financial Flexibility and Leverage of Small Public Firms : Policy Implications for Global Economic Crisis

This paper examines the impact of managerial entrenchment on financial flexibility, and financial leverage decisions of small public firms compared to medium and large firms based on market capitalization quartiles. E-index is a proxy for managerial entrenchment, and excess cash is a proxy for financial flexibility. Results show that entrenched managers in small firms hold significantly less excess cash than entrenched managers in medium or large firms. Small public firms significantly borrow more money using short-term maturity than medium, and large firms that borrow less money using long-term maturities. Compared to pre-2008 crisis levels, most firms borrowed more money and held more excess cash during and after the global economic crisis, though small firms had limited access to cheap long-term funding compared to medium and large firms. Managers adopted more antitakeover practices after the 2008 global crisis and one interesting observation is that they became more entrenched. Results have economic and policy implications. Public policy should prioritize timely (within 1.5 to 2 years) access to cash for small firms over medium and large firms to pre-crisis excess cash levels