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When managers cannot commit: Capital structure under inalienable managerial entrenchment

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  • Thomas, Catherine
  • Wang, Yongxiang

Abstract

When partially inalienable managerial entrenchment is introduced to Zwiebel's 1996 model of dynamic capital structure, anticipated debt renegotiation between a higher-type manager and the creditor reduces expected firm value. Only lower-type managers can issue debt to avoid shareholder takeover.

Suggested Citation

  • Thomas, Catherine & Wang, Yongxiang, 2011. "When managers cannot commit: Capital structure under inalienable managerial entrenchment," Economics Letters, Elsevier, vol. 110(2), pages 107-109, February.
  • Handle: RePEc:eee:ecolet:v:110:y:2011:i:2:p:107-109
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    References listed on IDEAS

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    1. Philippe Aghion & Oliver D. Hart & John Moore, 1994. "The Economics of Bankruptcy Reform," NBER Chapters,in: The Transition in Eastern Europe, Volume 2: Restructuring, pages 215-244 National Bureau of Economic Research, Inc.
    2. Shleifer, Andrei & Vishny, Robert W., 1989. "Management entrenchment : The case of manager-specific investments," Journal of Financial Economics, Elsevier, vol. 25(1), pages 123-139, November.
    3. 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 225-264, April.
    4. Zwiebel, Jeffrey, 1996. "Dynamic Capital Structure under Managerial Entrenchment," American Economic Review, American Economic Association, vol. 86(5), pages 1197-1215, December.
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