CEO's Inside Debt and Dynamics of Capital Structure

Debt-type compensation (i.e., inside debt) exacerbates the divergence in risk preference between the CEO and shareholders that in turn affects the firm's capital structure decisions. An excessively risk-averse CEO uses debt that falls short of the shareholders' desired level, and is eager to lower the debt ratio when the firm is over-levered but reluctant to enhance the debt ratio when the firm is under-levered. We find that higher CEO inside debt ratio is associated with lower firm debt ratio and faster (slower) leverage adjustments toward the shareholders' desired level for over-levered (under-levered) firms. The CEO inside debt ratio most conducive to optimal capital structure dynamics is around 10 percent of the firm's market debt ratio

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Year of publication:	2016
Authors:	Brisker, Eric R.
Other Persons:	Wang, Wei (contributor)
Publisher:	[2016]: [S.l.] : SSRN
Subject:	Kapitalstruktur \| Capital structure \| Führungskräfte \| Managers \| Theorie \| Theory

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Extent:	1 Online-Ressource (53 p)
Type of publication:	Book / Working Paper
Language:	English
Notes:	In: Financial Management, Forthcoming Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments August 17, 2016 erstellt
Other identifiers:	10.2139/ssrn.2718498 [DOI]
Classification:	G30 - Corporate Finance and Governance. General ; G32 - Financing Policy; Capital and Ownership Structure ; G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10013000976