Managerial Autonomy, Allocation of Control Rights, and Optimal Capital Structure

Arnoud W. A. Boot; Anjan V. Thakor

doi:10.1093/rfs/hhr045

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Managerial Autonomy, Allocation of Control Rights, and Optimal Capital Structure

Arnoud W. A. Boot^1,2; Anjan V. Thakor³

¹ Center for Economic and Policy Research · ² University of Amsterdam · ³ Washington University in St. Louis

Review of Financial Studies 2011

We examine the design of control rights of external financiers, and how these interact with the firm's security issuance and capital structure when the firm's initial owners and managers may disagree with new investors over project choice. The first main result is an ex ante managerial preference for “soft” financial claims that maximize managerial project-choice autonomy, which is in contrast to agency theory. Second, a dynamic “pecking order” of cash, equity, and debt emerges. Additional results explain equity issuance at high prices, the drifting of leverage ratios with stock returns, cash hoarding, and debt usage without taxes, agency, or signaling.

DOI: 10.1093/rfs/hhr045
Volume: 24 (10)
Pages: 3434-3485
Language: en
Export: BibTeX
Sources: openalex crossref