In recent years, the number of downgrades in corporate bond ratings has exceeded the number of upgrades, leading some to conclude that the credit quality of U.S. corporate debt has declined. However, an alternative explanation of this apparent decline in credit quality is that the rating...

This paper provides a test of whether capital structure decisions are at least in part motivated by managerial self-interest. It is show n that the debt ratio is negatively related to management's sharehold ing, reflecting the greater nondiversifiable risk of debt to manageme nt than to public...