The corporate governance literature has shown that self-interested controlling owners tend to divert corporate resources for private benefits at the expense of other shareholders. Such behavior leads the controlling owners to prefer long maturity debt to short maturity debt, to avoid frequent...

The median U.S. non-regulated firm reports a 47 percent decline in leverage ratio between 1980 and 2010. We investigate whether the cost-benefit tradeoff to shareholders, captured by the valuation impact of an additional dollar of debt on owners' equity, is an explanation for the observed change...

We contribute to the literature on “market timing” by exploring periods of simultaneous equity issues and debt retirements (a leverage decreasing recapitalization, LDR). We hypothesize and show that such LDRs are driven by measures of creditor control but are not predicted by capital...

We study a model in which leverage and compensation are both choice variables for the firm and borrowing spreads are endogenous. First, we analyze the correlation between leverage and variable compensation. We show that allowing for both endogenous compensation and leverage fully rationalizes...

This study examines the relation between CEO tournament incentives, proxied by the difference between CEO pay and the median pay of the senior executives of a given firm, and corporate debt contracting. We find negative relations between CEO pay gap and the cost of debt and default risk, and a...

Private equity buyouts have become a common element in the industrial development process. I survey the literature on the real economic effect of buyouts: employment, wages, productivity, and long-run investments. Employment tend to marginally fall after a buyout in most countries studied, with...

We exploit cross-sectional variation in the predictable changes in asset volatility following corporate acquisitions to identify the effect of business risk on capital structure. We find that post-merger changes in leverage and cash holdings are strongly predicted by expected asset volatility...

The present paper studies the impact of the SOX act to the choice of payment in Mergers & Acquisitions for firms with different capital structures. Use Probit and Tobit models to access the firms' pre-acquisition leverage levels as well as the leverage changes of firms because of the SOX act....

This paper examines how deviation from firms' target leverage influences their decisions on undertaking foreign acquisitions. Using a sample of 5,746 completed bids by UK acquirers from 1987 to 2012, we observe that over-deviated firms are more likely to acquire foreign targets. Consistent with...

Using Dutch data we empirically investigate how financing and innovation vary across firm characteristics. We find that when firms face financial constraints, debt financing and innovation choices are not independent of firm characteristics, and R&D slows down. In the absence of financial...