Managerial discretion and optimal financing policies

Stulz, René M.

doi:10.1016/0304-405x(90)90011-n

Cited by 2,976 publications

(1,845 citation statements)

References 14 publications

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“…They entrench themselves by specific investment that reduce the risk of their revocation and make themselves valuable to shareholders and costly to replace. Amihud and Lev (1999) and Stulz (1990) also point that through diversification, it is assumed that managers extend firm size, decrease firm risk at the expense of lower stockholders income and developing more personal gains. Accoding to Pigé (1998) entrenchment is analyzed from two points of view: (i) from manager himself, entrenchment concerns all things and behavior that can maintain his job, increase his liberty to decide and obtain private benefits (Charreaux, 1997).…”

Section: Entrenchement Behavior Manager Ownership and Diversificationmentioning

confidence: 99%

Corporate Board Characteristics, Managerial Entrenchment and Diversification Strategy: Evidence from Tunisian Context

Marouan¹

2015

IJBM

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The aim of this paper is to analyze the role of the board of directors and the management entrenchment in the explanation of diversification strategy of the Tunisian firms. In particular we focus on the characteristics of these two opposite directions bodies where the first controls the second in explaining the strategic choices of the firm. We find evidence for the negative effect of the board size and outside directors on the diversification strategy of the firm. The empirical result points also the negative effect of the CEO duality, which is inconsistent with the agency hypothesis.

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Section: Entrenchement Behavior Manager Ownership and Diversificationmentioning

confidence: 99%

Corporate Board Characteristics, Managerial Entrenchment and Diversification Strategy: Evidence from Tunisian Context

Marouan¹

2015

IJBM

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“…If managers work in the interest of shareholders, they may give up some positive net present value projects due to debt overhang. The theories of Jensen (1986), Stulz (1990), and Grossman and Hart (1982) also suggest a negative relationship between leverage and investment, but their arguments are based on agency conflicts between managers and shareholders. They argue that firms with free cash flow but low (or no) growth opportunities may nevertheless invest (overinvest) in that the manager may take on projects with negative net present value.…”

Section: Growth Opportunities and The Role Of Leveragementioning

confidence: 99%

The impact of leverage on firm investment: Canadian evidence

Aivazian

Qiu

2005

Journal of Corporate Finance

478

407

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This study examines the impact of financial leverage on the firms' investment decisions using information on Canadian publicly traded companies. It shows that leverage is negatively related to investment and that this negative effect is significantly stronger for firms with low growth opportunities than those with high growth opportunities. The paper tests the robustness of these results using alternative empirical models and, in addition, uses the instrumental variable approach to deal with the endogeneity problem inherent in the relationship between leverage and investment. The results provide support to agency theories of corporate leverage, and especially the theory that leverage has a disciplining role for firms with low growth opportunities. D 2005 Elsevier B.V. All rights reserved.JEL classification: G32

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“…A very recent paper in this direction is Morellec (2004), who uses a framework similar to Stulz (1990) and shows that managerial discretion can account for low leverage ratios.…”

Section: Literature Reviewmentioning

confidence: 99%

Informational Asymmetry Between Managers and Investors in the Optimal Capital Structure Decision

Bank

Lawrenz

2005

SSRN Journal

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In this article, we consider the impact of asymmetric information between managers and investors on the optimal capital structure decision. This is done within a continuous-time framework, where the relevant state variable is given by the EBIT value of the firm; an approach taken by (2004) amongst others. Our setup differs in that we assume the EBIT to follow an Arithmetic Brownian motion, i.e. it can assume negative values. More importantly, we extend this framework in two directions: (i) We introduce a separate management claim. (ii) We introduce asymmetric information between managers and investors by assuming that claimants receive noisy signals, which they process according to rational expectation principles.Our results show, that managers always try to avoid debt, and that their optimal bankruptcy threshold is always lower, than the threshold set by equity holders. The introduction of asymmetric information changes the optimality conditions, and consequently the capital structure decision. It is shown, that the informational asymmetry can substantially lower the optimal leverage ratio, even without assuming that managers are entrenched.

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Managerial discretion and optimal financing policies

Cited by 2,976 publications

References 14 publications

Corporate Board Characteristics, Managerial Entrenchment and Diversification Strategy: Evidence from Tunisian Context

Corporate Board Characteristics, Managerial Entrenchment and Diversification Strategy: Evidence from Tunisian Context

The impact of leverage on firm investment: Canadian evidence

Informational Asymmetry Between Managers and Investors in the Optimal Capital Structure Decision

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