Managerial incentives and corporate leverage: evidence from the United Kingdom

Chris Florackis () and Aydin Ozkan

Accounting and Finance, 2009, vol. 49, issue 3, 531-553

Abstract: This paper investigates the effect of managerial incentives and corporate governance on capital structure using a large sample of UK firms during the period 1999–2004. The analysis revolves around the view that managerial incentives are important in determining a firm's leverage. However, we argue that the exact impact of these incentives on leverage is likely to be determined by firm‐specific governance characteristics. To conduct our investigation, we construct a simple corporate governance measure using detailed ownership and governance information. We present evidence of a significant non‐monotonic relationship between executive ownership and leverage. There is also strong evidence suggesting that corporate governance practices have a significant impact on leverage. More importantly, the results reveal that the nature of the relation between executive ownership and leverage depends on the firm's corporate governance structure.

Date: 2009
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https://doi.org/10.1111/j.1467-629X.2009.00296.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:acctfi:v:49:y:2009:i:3:p:531-553

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