Managerial Entrenchment and Capital Structure Decisions
Philip G. Berger
University of Chicago - Booth School of Business
New York University (NYU) - Department of Finance
New York University (NYU) - Stern School of Business
J. OF FINANCE, Vol. 52 No. 4, September 1997
We study associations between managerial entrenchment and firms' capital structures, with results generally suggesting that entrenched CEOs seek to avoid debt. In a cross- sectional analysis, we find that leverage levels are lower when CEOs do not face pressure from either ownership and compensation incentives or active monitoring. In an analysis of leverage changes, we find that leverage increases in the aftermath of entrenchment-reducing shocks to managerial security, including unsuccessful tender offers, involuntary CEO replacements, and the addition to the board of major stockholders.
JEL Classification: G32, G39
Date posted: July 7, 1997
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