Abstract

http://ssrn.com/abstract=958991
 
 

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Shareholder-Manager Alignment and the Cost of Debt


Matthew T. Billett


Indiana University - Kelley School of Business - Department of Finance

Paul Hribar


University of Iowa - Henry B. Tippie College of Business

Yixin Liu


University of New Hampshire

July 1, 2011


Abstract:     
We investigate the influence of shareholder-manager incentive alignment on the cost of debt using a sample of dual-class firms, where managerial voting rights and cash-flow rights can be separated. We find the cost of debt financing increases in managerial voting rights and decreases in cash-flow rights. However, we also find that the amount of leverage increases in managerial voting rights and decreases in cash-flow rights. Together the results suggest that although the cost of debt increases when shareholder and manager interests diverge, the cost of debt relative to the cost of equity declines, making debt more appealing to firms with high potential agency costs of equity.

Number of Pages in PDF File: 37

Keywords: dual-class, cost of debt, agency costs, managerial ownership, shareholder-manager alignment

JEL Classification: G32, G34

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Date posted: January 23, 2007 ; Last revised: May 12, 2014

Suggested Citation

Billett, Matthew T. and Hribar, Paul and Liu, Yixin, Shareholder-Manager Alignment and the Cost of Debt (July 1, 2011). Available at SSRN: http://ssrn.com/abstract=958991 or http://dx.doi.org/10.2139/ssrn.958991

Contact Information

Matthew T. Billett
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3366 (Phone)

Paul Hribar
University of Iowa - Henry B. Tippie College of Business ( email )
Dept. of Accounting
Iowa City, IA 52242-1000
United States
319-335-1008 (Phone)
Yixin Liu (Contact Author)
University of New Hampshire ( email )
Durham, NH 03824
United States
603-862-3357 (Phone)
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