Dynamic Capital Structure under ManagerialEntrenchment:Evidence from a Structural Estimation

This paper examines the impact of agency conicts on corporate nancing decisions. Werst build a dynamic contingent claims model in which nancing policy results from a trade-obetween tax benets, contracting frictions, and agency conicts. In our setting, partially-entrenched managers set the rms' payout and nancing policies to maximize the presentvalue of their rents. Shareholders can remove managers, but only at a cost. Our analysisdemonstrates that entrenched managers issue less debt and rebalance capital structure lessoften than optimal for shareholders.[...]

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Year of publication:	2008-09-01
Authors:	Morellec, Erwan ; Nikolov, Boris ; Schürhoff, Norman
Institutions:	National Centre of Competence in ResearchFinancial Valuation and Risk Management
Subject:	Finanzierung \| finance \| Agency-Theorie \| Schätzung

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I. Introduction
II. The Model
A. Assumptions
B. Model Solution
C. Model Predictions
III. Empirical Analysis
A. Estimation Strategy
B. Empirical Specication
IV. Estimation Results
A. Dynamic Capital Structure without Agency Conflicts
B. The Estimated Cost of Control Challenge and Bargaining Power
C. Robustness Checks
D. The Determinants of Entrenchment and Financing Decisions
V. Conclusion
Appendix A: Proofs and Data Denitions
Appendix B: Simulated Evidence
References

Persistent link: https://www.econbiz.de/10005868708