An Empirical Analysis of Incremental Capital Structure Decisions Under Managerial Entrenchment

de Jong, Abe; Veld, Chris

doi:10.2139/ssrn.166479

Download This Paper

Open PDF in Browser

Add Paper to My Library

An Empirical Analysis of Incremental Capital Structure Decisions Under Managerial Entrenchment

42 Pages Posted: 22 Oct 1999

See all articles by Abe de Jong

Abe de Jong

Monash University; University of Groningen; European Corporate Governance Institute (ECGI)

Chris Veld

Monash University

There are 2 versions of this paper

Date Written: August 31, 2000

Abstract

We study incremental capital structure decisions of Dutch companies. From 1977 to 1996 these companies have made 110 issues of public and private seasoned equity and 137 public issues of straight debt. Managers of Dutch companies are entrenched. For this reason a discrepancy exists between managerial decisions and shareholder reactions. Confirming Zwiebel (1996) we find that Dutch managers avoid the disciplining role of debt allowing them to overinvest. However, the market reactions show that this overinvestment behavior is recognized. We do not find a confirmation of the adverse selection model of Myers and Majluf (1984). This is probably due to the entrenchment of managers and the prevalence of rights issues.

JEL Classification: G32

Suggested Citation: Suggested Citation

de Jong, Abe and Veld, Chris, An Empirical Analysis of Incremental Capital Structure Decisions Under Managerial Entrenchment (August 31, 2000). Available at SSRN: https://ssrn.com/abstract=166479 or http://dx.doi.org/10.2139/ssrn.166479