Are Directors Really Irrelevant to Capital Structure Choice?

45 Pages Posted: 29 Nov 2016 Last revised: 6 Jan 2017

See all articles by André Gygax

André Gygax

University of Melbourne - Department of Finance

Matthew Hazledine

University of Melbourne - Department of Finance

J. Spencer Martin

University of Melbourne - Faculty of Business and Economics; Financial Research Network (FIRN)

Date Written: January 5, 2017

Abstract

DeAngelo and Roll (2015) observe that leverage cross-sections change significantly over even short periods. This finding is largely incompatible with existing models operating on the assumption that firms choose leverage levels in isolation. In this paper, we ask how executive networks might affect the decision making process. Using a sample of large US firms, we apply the stochastic actor dynamic social network methodology to show that firms with directors in common tend to become more similar in capital structure. Network influence effects are economically significant even with traditionally employed capital structure variables and are robust to director selection effects.

Keywords: Board interlocking network, capital structure

JEL Classification: G31, G32

Suggested Citation

Gygax, André and Hazledine, Matthew and Martin, J. Spencer, Are Directors Really Irrelevant to Capital Structure Choice? (January 5, 2017). Available at SSRN: https://ssrn.com/abstract=2876221 or http://dx.doi.org/10.2139/ssrn.2876221

André Gygax (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Business and Economics
Parkville, Victoria 3010
Australia

Matthew Hazledine

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

J. Spencer Martin

University of Melbourne - Faculty of Business and Economics ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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