Journal of Financial and Quantitative Analysis Vol. 43 No. 4 2008
Managerial Traits and Capital Structure Decisions
Abstract
This article incorporates well-documented managerial traits into a tradeoff model of capital structure to study their impact on corporate financial policy and firm value. Optimistic and/or overconfident managers choose higher debt levels and issue new debt more often but need not follow a pecking order. The model also surprisingly uncovers that these managerial traits can play a positive role. Biased managers' higher debt levels restrain them from diverting funds, which increases firm value by reducing this manager-shareholder conflict. Although higher debt levels delay investment, mildly biased managers' investment decisions can increase firm value by reducing this bondholder-shareholder conflict.
- DOI
- 10.1017/s002210900001437x
- Volume
- 43
- Issue
- 4
- Pages
- 843-881
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref