Corporate Governance and Capital Structure Dynamics

  title={Corporate Governance and Capital Structure Dynamics},
  author={Erwan Morellec and Boris Nikolov and NORMAN SCH{\"U}RHOFF},
We develop a dynamic tradeoff model to examine the importance of manager-shareholder conflicts in capital structure choice. In the model, firms face taxation, refinancing costs, and liquidation costs. Managers own a fraction of the firms’ equity, capture part of the free cash flow to equity as private benefits, and have control over financing decisions. Using data on leverage choices and the model’s predictions for different statistical moments of leverage, we find that agency costs of 1.5% of… CONTINUE READING