The DOI matches its Crossref record; 34 of the 34 references it cites were found in a registry or an index.
Managerial Conservatism, Project Choice, and Debt
Abstract
We show that the incentive for managers to build their reputations distorts firms’ investment policies in favor of relatively safe projects, thereby aligning managers’ interests with those of bondholders, even though managers are hired and fired by shareholders. This effect opposes the familiar agency problem of risky debt that is imperfectly covenant-protected, wherein shareholders are tempted to favor excessively risky projects in order to expropriate bondholders. Consequently, when managerial concern for reputation results in conservatism, it can actually make shareholders better off ex ante by allowing the firm to issue more debt. We examine how the optimal choice of leverage from the shareholders’ standpoint is influenced by takeover activity, and how the adoption of antitakeover measures affects a firm’s investment policy and leverage choice.
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Cites
Theory of the firm: Managerial behavior, agency costs and ownership structure
Jensen, M. C., & Meckling, W. H. (1976) · Journal of Financial Economics · doi:10.1016/0304-405x(76)90026-x · Cited by 71,491
Performance Pay and Top-Management Incentives
Jensen, M. C., & Murphy, K. J. (1990) · Journal of Political Economy · doi:10.1086/261677 · Cited by 5,083
Outside directors and CEO turnover
Weisbach, M. S. (1988) · Journal of Financial Economics · doi:10.1016/0304-405x(88)90053-0 · Cited by 4,234
Dividend Policy under Asymmetric Information
MILLER, M. H., & ROCK, K. (1985) · The Journal of Finance · doi:10.1111/j.1540-6261.1985.tb02362.x · Cited by 3,441
Managerial Incentive Problems: A Dynamic Perspective
Holmstrom, B. (1999) · Review of Economic Studies · doi:10.1111/1467-937x.00083 · Cited by 3,172
Managerial control of voting rights
Stulz, R. (1988) · Journal of Financial Economics · doi:10.1016/0304-405x(88)90039-6 · Cited by 2,429
Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence
Gibbons, R., & Murphy, K. J. (1992) · Journal of Political Economy · doi:10.1086/261826 · Cited by 1,873
Reputation Acquisition in Debt Markets
Diamond, D. W. (1989) · Journal of Political Economy · doi:10.1086/261630 · Cited by 1,621
Stock prices and top management changes
Warner, J. B., Watts, R. L., & Wruck, K. H. (1988) · Journal of Financial Economics · doi:10.1016/0304-405x(88)90054-2 · Cited by 1,568
The effect of capital structure on a firm's liquidation decision
Titman, S. (1984) · Journal of Financial Economics · doi:10.1016/0304-405x(84)90035-7 · Cited by 1,500
Cited by
Laverty, K. J. (1996) · Academy of Management Review · doi:10.5465/amr.1996.9702100316 · Cited by 690
Metadata
- Authors
- Hirshleifer, D., & Thakor, A. V.
- Venue
- Review of Financial Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 1992-07
- Volume
- 5
- Issue
- 3
- Pages
- 437-470
- ISSN
- 0893-9454 (ISSN-L)
- 1465-7368
- OpenAlex
- W2031248119
- Cited by
- 555
- References
- 34
- FWCI
- 38.88
- Type
- journal article
- Language
- en
- Open access
- closed
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
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