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Managerial Entrenchment and Capital Structure Decisions
Author(s) -
BERGER PHILIP G.,
OFEK ELI,
YERMACK DAVID L.
Publication year - 1997
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1997.tb01115.x
Subject(s) - leverage (statistics) , capital structure , incentive , shareholder , debt , business , monetary economics , accounting , finance , economics , microeconomics , corporate governance , computer science , machine learning
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.