The Interaction of Capital Structure and Ownership Structure
AbstractWe develop a model of the interaction of firms' capital and ownership structures. The structures are designed to trade off managerial discipline versus managerial initiative. Debt features constrain managerial choice following poor firm performance. Equity ownership dispersion increases managerial initiative, by granting some managerial freedom following high firm performance. The empirical predictions are: equity ownership should be concentrated when debt is closely held, effective debt covenants are present, bankruptcy procedures and the institutional environment are creditor friendly, and board representation of lenders is commonplace. By contrast, equity should be dispersed if long-term investments are more important than short-term project selection.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 78 (2005)
Issue (Month): 3 (May)
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Web page: http://www.journals.uchicago.edu/JB/
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- Lieven Baert & Rudi Vander Vennet, 2009. "Bank Ownership, Firm Value and Firm Capital Structure in Europe," Working Paper / FINESS 2.2, DIW Berlin, German Institute for Economic Research.
- de La Bruslerie, Hubert & Latrous, Imen, 2012. "Ownership structure and debt leverage: Empirical test of a trade-off hypothesis on French firms," Journal of Multinational Financial Management, Elsevier, vol. 22(4), pages 111-130.
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- Edmans, Alex, 2011. "Short-term termination without deterring long-term investment: A theory of debt and buyouts," Journal of Financial Economics, Elsevier, vol. 102(1), pages 81-101, October.
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