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Debt, Incentives and Performance: Evidence from UK Panel Data

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  • Roberta DessÌ
  • Donald Robertson

Abstract

A large body of theoretical literature suggests that capital structure plays an important role as a managerial incentive mechanism. What of the evidence for the agency approach? Cross-sectional empirical studies have identified a positive effect of leverage on expected performance (measured by "Q") for firms with low growth opportunities. However, this evidence does not take into account the endogeneity of capital structure decisions. Our paper investigates the determinants of capital structure and performance, allowing for endogeneity and dynamics. Our results suggest that conclusions reached by previous studies which did not take into account the endogeneity issue should be treated with caution. Copyright 2003 Royal Economic Society.

Suggested Citation

  • Roberta DessÌ & Donald Robertson, 2003. "Debt, Incentives and Performance: Evidence from UK Panel Data," Economic Journal, Royal Economic Society, vol. 113(490), pages 903-919, October.
  • Handle: RePEc:ecj:econjl:v:113:y:2003:i:490:p:903-919
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    Cited by:

    1. Pierre Durand, 2018. "Impact du financement par fonds de pension sur la performance des entreprises du CAC 40," EconomiX Working Papers 2018-4, University of Paris Nanterre, EconomiX.
    2. Nur Ainna Ramli & Gilbert Nartea, 2016. "Mediation Effects of Firm Leverage in Malaysia: Partial Least Squares - Structural Equation Modeling," International Journal of Economics and Financial Issues, Econjournals, vol. 6(1), pages 301-307.
    3. Chen, Yenn-Ru & Lee, Bong Soo, 2010. "A dynamic analysis of executive stock options: Determinants and consequences," Journal of Corporate Finance, Elsevier, vol. 16(1), pages 88-103, February.
    4. Badi H. Baltagi, 2013. "Dynamic panel data models," Chapters,in: Handbook of Research Methods and Applications in Empirical Macroeconomics, chapter 10, pages 229-248 Edward Elgar Publishing.
    5. Abubakr Saeed & Yacine Belghitar & Ephraim Clark, 2017. "Political connections and firm operational efficiencies: evidence from a developing country," Review of Managerial Science, Springer, vol. 11(1), pages 191-224, January.
    6. Calcagno, R. & Renneboog, L.D.R., 2004. "Capital Structure and Managerial Compensation : The Effects of Remuneration Seniority," Discussion Paper 2004-015, Tilburg University, Tilburg Law and Economic Center.
    7. Alan Schwartz, "undated". "A Normative Theory of Business Bankruptcy," American Law & Economics Association Annual Meetings 1037, American Law & Economics Association.
    8. Aggarwal, Raj & Zhao, Xinlei, 2007. "The leverage-value relationship puzzle: An industry effects resolution," Journal of Economics and Business, Elsevier, vol. 59(4), pages 286-297.
    9. Ropero Moriones, Eva, 2005. "Limited liability in business groups," DEE - Working Papers. Business Economics. WB wb057617, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.

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