search query: @indexterm capital structure of companies / total: 353
reference: 29 / 353
| Author: | Lewellen, K. |
| Title: | Financing decisions when managers are risk averse |
| Journal: | Journal of Financial Economics
2006 : DEC, VOL. 82:3, p. 551-589 |
| Index terms: | finance decision making managers executive remuneration compensation stock options risk incentives capital structure of companies USA |
| Freeterms: | leverage |
| Language: | eng |
| Abstract: | Leverage raises stock volatility, driving a wedge btw. the cost of debt to shareholders and the cost to undiversified, risk-averse managers (as: mgrs). This paper quantifies these "volatility costs" (here as: vol-cts.) of debt examining their impact on financing decisions. It is found that: 1. the vol-cts. can be large for mgrs. exposed to firm-specific risk, 2. for a range of empirically relevant parameters, higher option ownership tends to increase the vol-cts., and 3. for mgrs. with stock options, a stock price increase typically raises vol-cts. Based on a large sample of U.S. firms, evidence is found that vol-cts. affect both the level of and short-term changes in debt, and that vol-cts. help explain a firm's choice btw. debt and equity. |
SCIMA