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Capital Structure Inertia and CEO Compensation

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Author Info
Gabrielle Wanzenried
Abstract

There is strong empirical evidence that firms do not always adjust their capital structure according to established capital structure theories. Rather, they follow a passive strategy such that capital structure changes are mainly driven by their stock returns. This paper investigates to what extent this behavioral inertia can be explained by the structure of executive compensation. Our data comprise US firms in the manufacturing industries over the years 1992 to 2000. We estimate a dynamic panel data model and find evidence for the hypothesis that stronger incentives schemes for CEOs lead to less capital structure inertia

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Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp0305.

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Date of creation: Apr 2003
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Handle: RePEc:ube:dpvwib:dp0305

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Related research
Keywords: capital structure; CEO compensation; dynamic panel data model;

Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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References listed on IDEAS
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.:
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    Other versions:
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  13. George P. Baker & Brian J. Hall, 1998. "CEO Incentives and Firm Size," NBER Working Papers 6868, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-64, April. [Downloadable!] (restricted)
    Other versions:
  15. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May. [Downloadable!] (restricted)
  16. Haugen, Robert A & Senbet, Lemma W, 1981. "Resolving the Agency Problems of External Capital through Options," Journal of Finance, American Finance Association, vol. 36(3), pages 629-47, June. [Downloadable!] (restricted)
  17. Samuelson, William & Zeckhauser, Richard, 1988. " Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
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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.)

  1. Matthew Lilling, 2006. "The Link Between CEO Compensation and Firm Performance: Does Simultaneity Matter?," Atlantic Economic Journal, International Atlantic Economic Society, vol. 34(1), pages 101-114, March. [Downloadable!] (restricted)
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