IDEAS home Printed from
   My bibliography  Save this article

Managerial incentives, net debt and investment activity in all-equity firms


  • Michael J. Alderson
  • Brian L. Betker


Purpose - The purpose of this paper is to examine the impact of managerial risk exposure on capital structure selection (net debt, or debt minus cash) as well as return on assets, capital expenditures, research and development expenditures and stock price performance. Design/methodology/approach - The paper compares a sample of 123 all-equity firms to a set of matching levered firms selected on the basis of industry, market cap and market-to-book assets. Managerial incentives are measured using the delta and vega of the manager's stock and option holdings. Findings - Net debt levels decline as CEO wealth sensitivity to stock price changes (delta) increases. However, the paper finds no differences between the all-equity firms and their levered matching firms in terms of return on assets, capital expenditures, R&D expense, or long run stock price performance. Research limitations/implications - Findings are consistent with the idea that managerial incentives drive net debt decisions even among all-equity firms. However, given that there are no differences between the sample firms and their matched firms in terms of investment or stock price performance, the effect of managerial risk aversion appears to be confined to financial policy. Originality/value - The paper uses modern methods for measuring managerial risk exposure to revisit the literature on all-equity firms, and show that managerial risk exposure affects the net debt decision in these firms.

Suggested Citation

  • Michael J. Alderson & Brian L. Betker, 2012. "Managerial incentives, net debt and investment activity in all-equity firms," Studies in Economics and Finance, Emerald Group Publishing, vol. 29(4), pages 232-246, September.
  • Handle: RePEc:eme:sefpps:v:29:y:2012:i:4:p:232-246

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers

    As the access to this document is restricted, you may want to search for a different version of it.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:sefpps:v:29:y:2012:i:4:p:232-246. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.