Capital Structure Inertia and CEO Compensation

Gabrielle Wanzenried

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft

Abstract: There is strong empirical evidence that firms do not always adjust their capital structure according to established capital structure theories. Rather, they follow a passive strategy such that capital structure changes are mainly driven by their stock returns. This paper investigates to what extent this behavioral inertia can be explained by the structure of executive compensation. Our data comprise US firms in the manufacturing industries over the years 1992 to 2000. We estimate a dynamic panel data model and find evidence for the hypothesis that stronger incentives schemes for CEOs lead to less capital structure inertia

Keywords: capital structure; CEO compensation; dynamic panel data model (search for similar items in EconPapers)
JEL-codes: C23 G32 J33 (search for similar items in EconPapers)
Date: 2003-04
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ube:dpvwib:dp0305

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