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Stock options and capital structure

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  • Richard MacMinn

    ()

  • Frank Page

    ()

Abstract

The empirical evidence on sources of corporate financing strongly suggests that firms prefer internally generated funds to debt and debt to equity in financing their investment activities. What is the economic rationale for this preference ordering or pecking order? We provide an explanation based on managerial compensation.

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File URL: http://hdl.handle.net/10.1007/s10436-005-0029-4
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Bibliographic Info

Article provided by Springer in its journal Annals of Finance.

Volume (Year): 2 (2006)
Issue (Month): 1 (January)
Pages: 39-50

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Handle: RePEc:kap:annfin:v:2:y:2006:i:1:p:39-50

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Web page: http://www.springerlink.com/link.asp?id=112370

Related research

Keywords: Stock options; Managerial compensation; Capital structure; Pecking order theory; Convexity and risk;

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References

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  1. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2006. "Managerial incentives and risk-taking," Journal of Financial Economics, Elsevier, vol. 79(2), pages 431-468, February.
  2. DeFusco, Richard A & Johnson, Robert R & Zorn, Thomas S, 1990. " The Effect of Executive Stock Option Plans on Stockholders and Bondholders," Journal of Finance, American Finance Association, vol. 45(2), pages 617-27, June.
  3. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  4. Hanoch, G & Levy, Haim, 1969. "The Efficiency Analysis of Choices Involving Risk," Review of Economic Studies, Wiley Blackwell, vol. 36(107), pages 335-46, July.
  5. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
  6. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  7. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  8. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  9. Brennan, Michael J & Kraus, Alan, 1987. " Efficient Financing under Asymmetric Information," Journal of Finance, American Finance Association, vol. 42(5), pages 1225-43, December.
  10. Bizjak, John M. & Brickley, James A. & Coles, Jeffrey L., 1993. "Stock-based incentive compensation and investment behavior," Journal of Accounting and Economics, Elsevier, vol. 16(1-3), pages 349-372, April.
  11. Thomas H. Noe, 1988. "Capital Structure and Signaling Game Equilibria," Review of Financial Studies, Society for Financial Studies, vol. 1(4), pages 331-355.
  12. Lambert, Richard A. & Lanen, William N. & Larcker, David F., 1989. "Executive Stock Option Plans and Corporate Dividend Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(04), pages 409-425, December.
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