Managerial Incentives and Corporate Leverage: Evidence from the United Kingdom

23 Pages Posted: 8 Oct 2009

See all articles by Chris Florackis

Chris Florackis

University of Liverpool (UK)

Aydin Ozkan

Hull University Business School (HUBS)

Date Written: 2008-12-18


This paper investigates the effect of managerial incentives and corporate governance on capital structure using a large sample of UK firms during the period 1999–2004. The analysis revolves around the view that managerial incentives are important in determining a firm's leverage. However, we argue that the exact impact of these incentives on leverage is likely to be determined by firm-specific governance characteristics. To conduct our investigation, we construct a simple corporate governance measure using detailed ownership and governance information. We present evidence of a significant non-monotonic relationship between executive ownership and leverage. There is also strong evidence suggesting that corporate governance practices have a significant impact on leverage. More importantly, the results reveal that the nature of the relation between executive ownership and leverage depends on the firm's corporate governance structure.

Suggested Citation

Florackis, Chris and Ozkan, Aydin, Managerial Incentives and Corporate Leverage: Evidence from the United Kingdom (2008-12-18). Accounting & Finance, Vol. 49, Issue 3, pp. 531-553, September 2009. Available at SSRN: or

Chris Florackis (Contact Author)

University of Liverpool (UK) ( email )

The Management School
University of Liverpool
Liverpool, L 697ZH
United Kingdom

Aydin Ozkan

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom

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