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Managerial Decision Making and Capital Structure

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Author Info
Maloney, Michael T
McCormick, Robert E
Mitchell, Mark L

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Abstract

This article investigates leverage influence on project selection. First, the authors examine 428 mergers (1962-82) and then 389 acquisitions of all types (1982-86). Announcement-period acquirer returns are greater the higher the leverage of the acquirer. A third data set contains 173 acquisitions undertaken during 1978-90 for firms that underwent major increases in leverage, often forced by hostile takeover. Acquisition performance increases after restructuring. The evidence is invariant with respect to methodology--beta-adjusted abnormal returns, numeraire portfolio approach, and three-factor regression model residuals produce identical results. Overall, the data support the hypothesis that debt improves managerial decision-making. Copyright 1993 by University of Chicago Press.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 66 (1993)
Issue (Month): 2 (April)
Pages: 189-217
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Handle: RePEc:ucp:jnlbus:v:66:y:1993:i:2:p:189-217

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  1. Sara B. Moeller & Frederik P. Schlingemann & Rene M. Stulz, 2004. "Wealth Destruction on a Massive Scale? A Study of Acquiring-Firm Returns in the Recent Merger Wave," NBER Working Papers 10200, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Voeller, Dennis & Overesch, Michael, 2008. "The Impact of Personal and Corporate Taxation on Capital Structure Choices," ZEW Discussion Papers 08-020, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  3. Sara B. Moeller & Frederik P. Schlingemann & Rene M. Stulz, 2004. "Do Acquirers With More Uncertain Growth Prospects Gain Less From Acquisitions?," NBER Working Papers 10773, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Sara B. Moeller & Frederik P. Schlingemann & Rene M. Schultz, 2004. "Do Acquirers With More Uncertain Growth Prospects Gain Less From Acquisitions?," Working Papers 05-17, Utrecht School of Economics. [Downloadable!]
  5. Jangkoo Kang & Joon-Seok Kim, 2006. "Private benefits of control and firm leverage: An analysis of Korean firms," Review of Quantitative Finance and Accounting, Springer, vol. 27(4), pages 439-463, December. [Downloadable!] (restricted)
  6. David Higgins & Steve Toms, 2003. "Financial distress, corporate borrowing, and industrial decline: the Lancashire cotton spinning industry, 1918-38," Accounting, Business and Financial History, Taylor and Francis Journals, vol. 13(2), pages 207-232, January. [Downloadable!] (restricted)
  7. Park, Timothy & Weliwita, Ananda, 1996. "Competitive Behavior In The Food Retailing Industry," Faculty Series 16680, University of Georgia, Department of Agricultural and Applied Economics. [Downloadable!]
  8. Steven N. Kaplan & Mark L. Mitchell & Karen H. Wruck, 1997. "A Clinical Exploration of Value Creation and Destruction in Acquisitions: Organizational Design, Incentives, and Internal Capital Markets," CRSP working papers 450, Center for Research in Security Prices, Graduate School of Business, University of Chicago. [Downloadable!]
    Other versions:
  9. Jong, A. de & Poel, A.M. van der & Wolfswinkel, M., 2007. "Corporate Governance and Acquisitions: Acquirer Wealth Effects in the Netherlands," Research Paper ERS-2007-016-F&A Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  10. David A. Butz, 1991. "Free Cash Flow Theory Without the Free Cash Emphasis," UCLA Economics Working Papers 614, UCLA Department of Economics. [Downloadable!]
  11. Mueller, Holger M & Panunzi, Fausto, 2003. "Tender Offers and Leverage," CEPR Discussion Papers 3964, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Moeller, Sara B. & Schilngemann, Frederik P. & Stulz, Rene M., 2004. "Do Acquirers with More Uncertain Growth Prospects Gain Less from Acquisitions?," Working Paper Series 2004-19, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
  13. Teodora Paligorova & Zhaoxia Xu, 2009. "Complex Ownership and Capital Structure," Working Papers 09-12, Bank of Canada. [Downloadable!]
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