Managerial Entrenchment and Capital Structure Decisions

J. OF FINANCE, Vol. 52 No. 4, September 1997

Posted: 7 Jul 1997  

Philip G. Berger

University of Chicago - Booth School of Business

Eli Ofek

New York University (NYU) - Department of Finance

David Yermack

New York University (NYU) - Stern School of Business

Abstract

We study associations between managerial entrenchment and firms' capital structures, with results generally suggesting that entrenched CEOs seek to avoid debt. In a cross- sectional analysis, we find that leverage levels are lower when CEOs do not face pressure from either ownership and compensation incentives or active monitoring. In an analysis of leverage changes, we find that leverage increases in the aftermath of entrenchment-reducing shocks to managerial security, including unsuccessful tender offers, involuntary CEO replacements, and the addition to the board of major stockholders.

JEL Classification: G32, G39

Suggested Citation

Berger, Philip G. and Ofek, Eli and Yermack, David, Managerial Entrenchment and Capital Structure Decisions. J. OF FINANCE, Vol. 52 No. 4, September 1997. Available at SSRN: https://ssrn.com/abstract=8404

Philip G. Berger

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-8687 (Phone)
773-834-4585 (Fax)

Eli Ofek

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

David Yermack (Contact Author)

New York University (NYU) - Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY 10012-1126
United States
212-998-0357 (Phone)
212-995-4220 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~dyermack

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