Debt, incentives and performance: evidence from UK panel data

Dessi, Roberta and Robertson, Donald (2000) Debt, incentives and performance: evidence from UK panel data. Financial Markets Group Discussion Papers (344). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

A large body of theoretical literature suggests that capital structure plays an important role 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 has been interpreted as supporting Jensen's free cash flow hypothesis. 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.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2000 The Author(s)
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
Date Deposited:	29 Jun 2023 14:15
Last Modified:	11 Dec 2024 19:47
URI:	http://eprints.lse.ac.uk/id/eprint/119107

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