Debt, Incentives and Performance: Evidence from UK Panel Data

Roberta Dessi and Donald Robertson

FMG Discussion Papers from Financial Markets Group

Abstract: A large body of theoretical literature suggests that capital structure plays an important as a managerial incentive mechanism. Cross-sectional empirical studies have identified a positive effect of leverage on expected performance (measured by Q) for firms with low growth opportunities. This is consistent with the joint hypothesis that leverage is beneficial for low-growth firms (in line with Jensens free cash flow hypothesis), and that not all firms choose capital structure efficiently. However, this evidence does not take into account the endogeneity of capital structure decisions. We investigate how endogeneity affects the results using instrumental variables and allowing for dynamics. The results of earlier studies are then re-interpreted in the light of our findings.

Date: 2000-02
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmg_pdfs/dp344.pdf (application/pdf)

Related works:
Journal Article: Debt, Incentives and Performance: Evidence from UK Panel Data (2003)
Working Paper: Debt, incentives and performance: evidence from UK panel data (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fmg:fmgdps:dp344

Access Statistics for this paper

More papers in FMG Discussion Papers from Financial Markets Group
Bibliographic data for series maintained by The FMG Administration ().