In a world with agency costs and asymmetric information, managers will have difficulty raising external funds since they have incentives to overinvest. Stulz argues that this leads to an optimal level of debt since this is one way to bond cash flows and reduce managerial discretion. However, unexpected cash flows cannot be so easily bonded. Thus, an implication of the Stulz hypothesis is that investment will be affected more by unexpected cash flows. Additionally, Stulz's hypothesis is most compelling for firms with low "q" ratios. Support is found for Stulz's hypothesis, and the support is strongest for low "q" firms. Copyright 1995 by MIT Press.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
Publisher Info
Article provided by Eastern Finance Association in its journal The Financial Review.
Volume (Year): 30 (1995) Issue (Month): 3 (August) Pages: 387-98 Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF
For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).
Related research
Keywords:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)