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Corporate Leverage: How Much Do Managers Really Matter?

42 Pages Posted: 16 Mar 2007  

Murray Z. Frank

University of Minnesota

Vidhan K. Goyal

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Date Written: March 14, 2007

Abstract

This paper studies the effect of top managers on corporate financing decisions. Differences among CEOs account for a great deal of the variation in leverage among firms. This effect can account for the firm fixed effects on capital structure stressed by Lemmon et al (2006). After a CEO is forced out, leverage typically declines. Firms that offer higher pay-for-performance to the top executives, adjust leverage to target more rapidly. CEO personal characteristics are not closely connected to corporate leverage choices. To some extent the CEO may be serving as a proxy for an entire management team. The CFO seems to play at least as important a role as the CEO in determining corporate leverage.

Keywords: Capital structure, behavioral finance, executive compensation, CEO, CFO

JEL Classification: G32

Suggested Citation

Frank, Murray Z. and Goyal, Vidhan K., Corporate Leverage: How Much Do Managers Really Matter? (March 14, 2007). Available at SSRN: https://ssrn.com/abstract=971082 or http://dx.doi.org/10.2139/ssrn.971082

Murray Z. Frank (Contact Author)

University of Minnesota ( email )

Carlson School of Management
321 19th Avenue South
Minneapolis, MN 55455
United States
612-625-5678 (Phone)

Vidhan K. Goyal

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong
852-2358-7678 (Phone)
852-2358-1749 (Fax)

HOME PAGE: http://www.vidhangoyal.com

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