Managerial Incentives, Net Debt and Investment Activity in All-Equity Firms

25 Pages Posted: 14 Apr 2010

See all articles by Michael J. Alderson

Michael J. Alderson

Saint Louis University - Richard A. Chaifetz School of Business

Brian L. Betker

Saint Louis University

Date Written: April 13, 2010

Abstract

We examine the impact of managerial risk exposure on capital structure selection by comparing a sample of 123 all-equity firms to a set of levered firms matched on the basis of industry, market cap and market-to-book assets. Net debt levels decline as CEO wealth sensitivity to stock price changes (delta) increases. However, we find no differences between the all-equity firms and their levered matching firms in terms of capital expenditures, R&D expense, return on assets, or long run stock price performance. The effect of managerial risk aversion in all-equity firms appears to be confined to financial policy.

Keywords: capital structure, managerial risk aversion, all-equity firms

JEL Classification: G32

Suggested Citation

Alderson, Michael J. and Betker, Brian L., Managerial Incentives, Net Debt and Investment Activity in All-Equity Firms (April 13, 2010). Available at SSRN: https://ssrn.com/abstract=1588974 or http://dx.doi.org/10.2139/ssrn.1588974

Michael J. Alderson

Saint Louis University - Richard A. Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO 63108-3397
United States
314-977-8169 (Phone)
314-977-3897 (Fax)

Brian L. Betker (Contact Author)

Saint Louis University ( email )

St. Louis, MO 63108-3397
United States

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