An Empirical Analysis of Incremental Capital Structure Decisions Under Managerial Entrenchment

Posted: 23 Apr 2001

See all articles by Abe de Jong

Abe de Jong

Rotterdam School of Management, Erasmus University; Monash University

Chris Veld

Monash University

Multiple version iconThere are 2 versions of this paper

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, M4

Suggested Citation

de Jong, Abe and Veld, Chris, An Empirical Analysis of Incremental Capital Structure Decisions Under Managerial Entrenchment. Forthcoming in Journal of Banking and Finance. Available at SSRN: https://ssrn.com/abstract=261848

Abe De Jong

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-25
Rotterdam, 3000 DR
Netherlands
+31 10 408 1022 (Phone)

HOME PAGE: http://https://www.rsm.nl/people/abe-de-jong/

Monash University ( email )

900 Dandenong Rd
Room H3-56
Caulfield East, Victoria 3145
Australia

HOME PAGE: http://https://research.monash.edu/en/persons/abe-de-jong

Chris Veld (Contact Author)

Monash University ( email )

Building 11E
Clayton, Victoria 3800
Australia

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