We investigate the effects of manager characteristics on capital structure. We first develop a dynamic structural model that incorporates managerial discretion in effort and financing, as well as agency conflicts between managers and outside investors. We derive the manager’s dynamic contract and implement it through financial securities. This leads to a dynamic capital structure for the firm c...

We consider firm financing when the firm quality is private information of the manager and, given its inherent quality, the project viability depends on the manager exerting unobservable effort. We show that capital structure matters even though managerial contracts are optimally designed. Good firms would like to issue more debt to avoid selling underpricing equity. However, the interaction be...

Using canonical correlation analysis, this study examined the interdependencies in investing and financing decisions of restaurant firms. The results indicated that the similar four crossbalance sheet interdependencies exist in the restaurant industry as identified by previous studies for different industries and companies in various countries: (1) maturity matching structure of assets and liab...

In many OECD countries, statutory corporate tax rates are lower than personal income tax rates. The present paper argues that this tax rate differentiation is an optimal tax policy if there are problems of asymmetric information between investors and firms in the capital market. The reduction of the corporate tax rate below the personal tax rate encourages equity financing and thus mitigates th...

We show that measurable managerial characteristics have significant explanatory power for corporate financing decisions. First, managers who believe that their firm is undervalued view external financing as overpriced, especially equity financing. Such overconfident managers use less external finance and, conditional on accessing external capital, issue less equity than their peers. Second, CEO...

ABSTRACT Using the dispersion in stock returns during financial crisis as a source of exogenous variation wealth Norwegian entrepreneurs who held listed stocks, I show that adverse shocks to business owners had large effects on their firms' financing, employment, and investment. The investment employment are driven by young firms, obtain differentially less bank financing following an owner sho...

China has undergone great economic and social change since 1978 with far reaching implications for the health care system and ultimately for the health status of the population. The Chinese Medical Reform of the 1980s made cost recovery a primary objective. The urban population is mostly protected by generous government health insurance. A high share government budget is allocated to urban heal...

This study examines the relationship between product differentiation and financial leverage. It argues that product differentiation is associated with investments in firm-specific assets that have lower liquidation value than general assets. Debt investors need to charge a higher interest rate to cover the risk of default, making the firm resort to equity financing and resulting in low financia...

A structural econometric investigation of the agency theory of financial structure We estimate a structural model of financing choices in presence of managerial moral hazard, financial distress costs and taxes. In the theoretical model, firms with low cost of managerial effort, and high financial distress costs and non–debt tax shields, find it optimal to issue equity. Correspondingly the likel...

W hen I was initially asked to be a participant in this conference, I thought I was to come up with strategies or modalities on how to bring equity into rural America. So in starting to prepare for this conference, I read the previous conference book Financing Rural America (Federal Reserve Bank of Kansas City). This book and its findings are extraordinary if not daunting. With such distinguish...