Financing decisions when managers are risk averse

• 成果类型: Article
• 署名作者: Lewellen, Katharina
• 署名单位: Dartmouth College
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2005.06.009
• 发表日期: 2006
• 页码: 551-589
• 关键词: Executive compensation; Stock options; Risk-taking incentives; capital structure; leverage

摘要

Leverage raises stock volatility, driving a wedge between the cost of debt to shareholders and the cost to undiversified, risk-averse managers. I quantify these volatility costs of debt and examine their impact on financing decisions. I find that: (1) the volatility costs of debt can be large for executives exposed to firm-specific risk; (2) for a range of empirically relevant parameters, higher option ownership tends to increase, not decrease, the volatility costs of debt; and (3) for managers with stock options, a stock price increase typically raises volatility costs. For a large sample of US firms, I find evidence that volatility costs affect both the level of and short-term changes in debt, and that volatility costs help explain a firm's choice between debt and equity. (c) 2006 Elsevier B.V. All rights reserved.