The Interaction of Capital Structure and Ownership Structure
We develop a model of the interaction of firms' capital and ownership structures. The structures are designed to trade off managerial discipline versus managerial initiative. Debt features constrain managerial choice following poor firm performance. Equity ownership dispersion increases managerial initiative, by granting some managerial freedom following high firm performance. The empirical predictions are: equity ownership should be concentrated when debt is closely held, effective debt covenants are present, bankruptcy procedures and the institutional environment are creditor friendly, and board representation of lenders is commonplace. By contrast, equity should be dispersed if long-term investments are more important than short-term project selection.
When requesting a correction, please mention this item's handle: RePEc:ucp:jnlbus:v:78:y:2005:i:3:p:787-816. 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: (Journals Division)
If references are entirely missing, you can add them using this form.