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.[...]