IDEAS home Printed from https://ideas.repec.org/a/nrb/journl/v25y2013i2p78-89.html
   My bibliography  Save this article

Managerial Entrenchment and Capital Structure Decision: A Case of Nepal

Author

Listed:
  • Post Raj Pokharel

    () (Time Pharmaceuticals P. Ltd., Narayangarh)

Abstract

This paper tests the influence of managerial entrenchment and capital structure decisions using Nepalese firms' data and executives view. A majority of earlier studies show that firm leverage is negatively associated with the degree of entrenchment of managers. This study examines whether or not this is consistent in the context of Nepal. The data were taken from top listed companies on NEPSE, pharmaceuticals companies registered in Department of Drug Administration and other non-listed companies. To achieve the objective of the study, a descriptive and causal comparative research design has been administered. The managerial entrenchment index has been calculated using Principal Component Analysis. The major finding of the study shows that the managerial entrenchment increases as the percentage of CEO ownership rises. There exists positive association of managerial entrenchment and CEO percent ownership which suggests that increase in equity holding by CEO or top executives leads to lower shareholder rights or higher managerial entrenchment.

Suggested Citation

  • Post Raj Pokharel, 2013. "Managerial Entrenchment and Capital Structure Decision: A Case of Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 25(2), pages 78-89, October.
  • Handle: RePEc:nrb:journl:v:25:y:2013:i:2:p:78-89
    as

    Download full text from publisher

    File URL: http://www.nrb.org.np/ecorev/pdffiles/vol25-2_art5.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. 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.
    2. Stulz, ReneM., 1988. "Managerial control of voting rights : Financing policies and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 25-54, January.
    3. Van Thuan Nguyen & Li Xu, 2010. "The Impact of Dual Class Structure on Earnings Management Activities," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(3-4), pages 456-485.
    4. Morck, Randall & Shleifer, Andrei & Vishny, Robert W, 1990. " Do Managerial Objectives Drive Bad Acquisitions?," Journal of Finance, American Finance Association, vol. 45(1), pages 31-48, March.
    5. Chen, Xiaoying (Cindy) & Yur-Austin, Jasmine, 2007. "Re-measuring agency costs: The effectiveness of blockholders," The Quarterly Review of Economics and Finance, Elsevier, vol. 47(5), pages 588-601, December.
    6. K. J. Martijn Cremers & Vinay B. Nair, 2005. "Governance Mechanisms and Equity Prices," Journal of Finance, American Finance Association, vol. 60(6), pages 2859-2894, December.
    7. Berger, Philip G & Ofek, Eli & Yermack, David L, 1997. " Managerial Entrenchment and Capital Structure Decisions," Journal of Finance, American Finance Association, vol. 52(4), pages 1411-1438, September.
    8. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    9. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    10. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
    11. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April.
    12. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
    13. 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.
    14. Lucian Bebchuk & Alma Cohen & Allen Ferrell, 2009. "What Matters in Corporate Governance?," Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 783-827, February.
    15. Robert C. Hanson & Moon H. Song, 2006. "Corporate Governance and Asset Sales: The Effect of Internal and External Control Mechanisms," The Financial Review, Eastern Finance Association, vol. 41(3), pages 361-386, August.
    16. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    17. Goyal, Vidhan K. & Park, Chul W., 2002. "Board leadership structure and CEO turnover," Journal of Corporate Finance, Elsevier, vol. 8(1), pages 49-66, January.
    18. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    19. Aydin Ozkan, 2001. "Determinants of Capital Structure and Adjustment to Long Run Target: Evidence From UK Company Panel Data," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(1-2), pages 175-198.
    20. Yoshikawa, Toru & Phan, Phillip H., 2003. "The Performance Implications of Ownership-driven Governance Reform," European Management Journal, Elsevier, vol. 21(6), pages 698-706, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Managerial Entrenchment; CEO Ownership; Capital Structure;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    Corrections

    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:nrb:journl:v:25:y:2013:i:2:p:78-89. 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: (Dr. Bishnu Prasad Gautam). General contact details of provider: http://edirc.repec.org/data/nrbgvnp.html .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.