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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27111
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| Title: | Managerial Entrenchment and Capital Structure Decisions |
| Authors: | Berger, Philip G.
Ofek, Eli
Yermack, David L. |
| Issue Date: | Dec-1995 |
| Series/Report no.: | FIN-95-011 |
| Abstract: | We test the prediction that leverage is inversely associated with
managerial entrenchment. We examine leverage levels and year-to-year
changes for several hundred firms between 1984 and 1991. We find that
leverage levels are positively related to CEO stock ownership and CEO
stock option holdings, and negatively related to CEO tenure and board of
directors size. While generally consistent with less entrenched CEOs
pursuing more leverage, these results are subject to alternative
interpretations. We therefore analyze year-to-year changes in leverage
around exogenous shocks to corporate governance variables. We find that
leverage increases after unsuccessful tender offers and
“forced” CEO replacements, and under certain conditions
after the arrival of major stockholders. These relations have greater
magnitude when the sample is restricted to low-leverage firms, even when
80% of firms are defined as low-leverage. The results are consistent
with decreases in entrenchment leading to increases in leverage, and
with the majority of firms having less debt than optimal. |
| URI: | http://hdl.handle.net/2451/27111 |
| Appears in Collections: | Finance Working Papers
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