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An Empirical Test of the Impact of Managerial Self-interest on Corporate Capital Structure

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 Friend, Irwin
Lang, Larry H P

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Abstract

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 investors for maintaining a low debt ratio. Unless there is a nonmanagerial principal stockholder, no substantial increase of debt can be realized. It may be suggestive that the existence of large nonmangerial stockholders might make the interests of Finance. Copyright 1988 by American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 43 (1988)
Issue (Month): 2 (June)
Pages: 271-81
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Handle: RePEc:bla:jfinan:v:43:y:1988:i:2:p:271-81

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