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


  • Friend, Irwin
  • Lang, Larry H P


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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  • Friend, Irwin & Lang, Larry H P, 1988. " An Empirical Test of the Impact of Managerial Self-interest on Corporate Capital Structure," Journal of Finance, American Finance Association, vol. 43(2), pages 271-281, June.
  • Handle: RePEc:bla:jfinan:v:43:y:1988:i:2:p:271-81

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    References listed on IDEAS

    1. Grossman, Sanford J, 1988. "An Analysis of the Implications for Stock and Futures Price Volatility of Program Trading and Dynamic Hedging Strategies," The Journal of Business, University of Chicago Press, vol. 61(3), pages 275-298, July.
    2. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March.
    3. Cohen, Kalman J, et al, 1981. "Transaction Costs, Order Placement Strategy, and Existence of the Bid-Ask Spread," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 287-305, April.
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