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Market Timing and Capital Structure
- THE JOURNAL OF FINANCE • VOL. LVII, NO. 1 • FEB. 2002
, 2002
"... It is well known that firms are more likely to issue equity when their market values are high, relative to book and past market values, and to repurchase equity when their market values are low. We document that the resulting effects on capital structure are very persistent. As a consequence, curren ..."
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Cited by 427 (13 self)
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It is well known that firms are more likely to issue equity when their market values are high, relative to book and past market values, and to repurchase equity when their market values are low. We document that the resulting effects on capital structure are very persistent. As a consequence, current capital structure is strongly related to historical market values. The results suggest the theory that capital structure is the cumulative outcome of past attempts to time the equity market.
Higher market valuation of companies with a small board of directors.
- Journal of Financial Economics
, 1996
"... Abstract I present evidence consistent with theories that small boards of directors are more effective, Using Tobin's Q as an approximation of market valuation, I find an inverse association between board size and firm value in a sample of 452 large U.S. industrial corporations between 1984 an ..."
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Cited by 416 (5 self)
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Abstract I present evidence consistent with theories that small boards of directors are more effective, Using Tobin's Q as an approximation of market valuation, I find an inverse association between board size and firm value in a sample of 452 large U.S. industrial corporations between 1984 and 1991. The result is robust to numerous controls for company size, industry membership, inside stock ownership, growth opportunities, and alternative corporate governance structures. Companies with small boards also exhibit more favorable values for financial ratios, and provide stronger CEO performance incentives from compensation and the threat of dismissal.
Testing Tradeoff and Pecking Order Predictions about Dividends and Debt
- Review of Financial Studies
, 2000
"... We test the dividend and leverage predictions of the tradeoff and pecking order models. As both models predict, more profitable firms have higher long-term dividend payouts, and firms with more investments have lower payouts. Confirming the pecking order model but contradicting the tradeoff model, m ..."
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Cited by 367 (3 self)
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We test the dividend and leverage predictions of the tradeoff and pecking order models. As both models predict, more profitable firms have higher long-term dividend payouts, and firms with more investments have lower payouts. Confirming the pecking order model but contradicting the tradeoff model, more profitable firms are less levered. Firms with more investment opportunities are also less levered, which is in line with the tradeoff model and a complex version of the pecking order model. Firms with more investments have lower long-term dividend payouts, but dividends do not vary to accommodate short-term variation in investment. Confirming the pecking order model, short-term variation in investment and earnings is mostly absorbed by variation in debt. * Graduate School of Business, University of Chicago (Fama) and Sloan School of Management, MIT (French). The finance literature offers two competing models of financing decisions. In the tradeoff model, firms identify their optimal l...
Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature
, 2001
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The determinants and implications of corporate cash holdings
- Journal of Financial Economics
, 1999
"... NBER. Tim Opler also holds an appointment at Deutsche Morgan Grenfell. We thank ..."
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Cited by 346 (15 self)
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NBER. Tim Opler also holds an appointment at Deutsche Morgan Grenfell. We thank
Testing Static Trade-Off against Pecking Order Models of Capital Structure
- Journal of Financial Economics
, 1999
"... This paper tests traditional capital structure models against the alternative of a pecking order model of corporate financing. The basic pecking order model, which predicts external debt financing driven by the internal financial deficit, has much greater timeseries explanatory power than a static t ..."
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Cited by 321 (0 self)
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This paper tests traditional capital structure models against the alternative of a pecking order model of corporate financing. The basic pecking order model, which predicts external debt financing driven by the internal financial deficit, has much greater timeseries explanatory power than a static tradeoff model, which predicts that each firm adjusts gradually toward an optimal debt ratio. We show that our tests have the power to reject the pecking order against alternative tradeoff hypotheses. The statistical power of some usual tests of the tradeoff model is virtually nil. � 1999 Elsevier Science S.A. All rights reserved. JEL classification: G32
MANAGING WITH STYLE: THE EFFECT OF MANAGERS ON FIRM POLICIES
, 2003
"... This paper investigates whether and how individual managers affect corporate behavior and performance. We construct a manager-firm matched panel data set which enables us to track the top managers across different firms over time. We find that manager fixed effects matter for a wide range of corpora ..."
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Cited by 251 (7 self)
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This paper investigates whether and how individual managers affect corporate behavior and performance. We construct a manager-firm matched panel data set which enables us to track the top managers across different firms over time. We find that manager fixed effects matter for a wide range of corporate decisions. A significant extent of the heterogeneity in investment, financial and organizational practices of firms can be explained by the presence of manager fixed effects. We identify specific patterns in managerial decision making that appear to indicate general differences in “style” across managers. Moreover, we show that management style is significantly related to manager fixed effects in performance and that managers with higher performance fixed effects receive higher compensation and are more likely to be found in better governed firms. In a final step, we tie back these findings to observable managerial characteristics. We find that executives from earlier birth cohorts appear on average to be more conservative; on the other hand, managers who hold an MBA degree seem to follow on average more aggressive strategies.
Testing the pecking order theory of capital structure
, 2003
"... We test the pecking order theory of corporate leverage on a broad cross-section of publicly traded American firms for 1971 to 1998. Contrary to the pecking order theory, net equity issues trackthe financing deficit more closely than do net debt issues. While large firms exhibit some aspects of pecki ..."
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Cited by 247 (5 self)
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We test the pecking order theory of corporate leverage on a broad cross-section of publicly traded American firms for 1971 to 1998. Contrary to the pecking order theory, net equity issues trackthe financing deficit more closely than do net debt issues. While large firms exhibit some aspects of pecking order behavior, the evidence is not robust to the inclusion of conventional leverage factors, nor to the analysis of evidence from the 1990s. Financing deficit is less important in explaining net debt issues over time for firms of all sizes.
Institutional Investors and Executive Compensation
, 2000
"... Due to institutional investors' increasing ownership and interest in corporate governance, we hypothesize that the presence of institutional investors is associated with certain executive compensation structures. We find a significantly negative relation between the level of compensation and th ..."
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Cited by 182 (16 self)
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Due to institutional investors' increasing ownership and interest in corporate governance, we hypothesize that the presence of institutional investors is associated with certain executive compensation structures. We find a significantly negative relation between the level of compensation and the concentration of institutional ownership, suggesting that institutions serve a monitoring role in the shareholder-manager agency problem. We further find a significantly positive relation between the pay-for-performance sensitivity of executive compensation and both the level and concentration of institutional ownership. These results suggest that the institutions act as a complement rather than a substitute to incentive compensation in mitigating the agency problem.
Financial accounting information and corporate governance
, 2001
"... This paper reviews and proposes additional research concerning the role of publicly reported financial accounting information in the governance processes of corporations. We first discuss research on the use of financial accounting in managerial incentive plans and explore future research directions ..."
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Cited by 179 (5 self)
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This paper reviews and proposes additional research concerning the role of publicly reported financial accounting information in the governance processes of corporations. We first discuss research on the use of financial accounting in managerial incentive plans and explore future research directions. We then propose that governance research be extended to explore more comprehensively the use of financial accounting information in additional corporate control mechanisms, and suggest opportunities for expanding such research. We also propose cross-country research to investigate more directly the effects of financial accounting information on economic performance through its role in
