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Article
Publication date: 1 February 1996

Claire E. Crutchley and Marlin R.H. Jensen

This paper tests how changes in information asymmetry and agency variables affect changes in debt policy. Unlike previous studies that examine levels of variables to explain what…

467

Abstract

This paper tests how changes in information asymmetry and agency variables affect changes in debt policy. Unlike previous studies that examine levels of variables to explain what may determine debt policy, we calculate yearly changes in variables to provide a stronger test of causal relations. By examining changes in agency and information variables, we are able to identify factors that cause firms to change their optimal capital structure. We find institutional ownership has become a substitute for debt financing due to increased shareholder activism. In addition, we find support for Jensen's free cash flow theory, mixed support for informational asymmetry, and no support for Jensen and Meckling's agency model.

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Managerial Finance, vol. 22 no. 2
Type: Research Article
ISSN: 0307-4358

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Book part
Publication date: 9 October 2020

Ali C. Akyol

Abstract

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Corporate Fraud Exposed
Type: Book
ISBN: 978-1-78973-418-8

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Article
Publication date: 1 February 1996

James W. Wansley, M. Cary Collins and Amitabh S. Dutta

Recent studies have shown that the level of insider holdings and firm value are related in a nonlinear manner. Other studies find that the level of debt in a firm's capital…

240

Abstract

Recent studies have shown that the level of insider holdings and firm value are related in a nonlinear manner. Other studies find that the level of debt in a firm's capital structure declines with increases in its growth options. The principal‐agent relationship maintains that an increase in the equity stake of insiders reduces the agency costs of issuing debt. Extension of this premise suggests, however, that the agency costs of debt rise with extremely high levels of insider holdings as insiders consume perquisites to the detriment of outside stakeholders, revealing a nonlinear relation attributable to agency costs. We examine the relation between debt financing and insider holdings for 1894 firms at the end of 1989. In keeping with the hypothesized relation, the cross‐sectional regressions of leverage on insider holdings reveal significant nonlinearities. Leverage first rises with insider holdings and then declines. The positive relation between leverage and insider holdings returns as inside ownership approaches 100 percent. These results hold for two different measures of leverage and after controlling for industry differences in leverage, tax shields, firm size, growth options, and earnings or return volatility. The results also hold when regulated firms are excluded from the analysis.

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Managerial Finance, vol. 22 no. 2
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 12 April 2011

Steve Swidler

The American Dream and homeownership are sometimes thought of as one and the same. A belief that homeownership is vital to the fabric of a vibrant society has led to government…

637

Abstract

Purpose

The American Dream and homeownership are sometimes thought of as one and the same. A belief that homeownership is vital to the fabric of a vibrant society has led to government policies that encourage homeownership. This suggests that homeownership and societal well‐being are positively related. However, empirical analysis does not support this positive relationship either within the USA or across countries. This has important policy implications given the research in this special issue that discusses the macro and micro economic consequences of government programs that promote homeownership. Moving forward, we must consider both the private and public benefits of homeownership and also realize that the very concept of what a house is will likely change. This paper aims to discuss these issues.

Design/methodology/approach

The analysis examines the relation between the incidence of homeownership and the well‐being (happiness) of a community. The analysis is first performed across the 50 states and then is done on a cross‐section of 26 countries.

Findings

The correlation coefficient between home ownership rates and well‐being are negative for both the US and international data. The evidence does not support the belief that homeownership is either necessary or sufficient for societal well‐being.

Originality/value

The paper presents some of the first empirical analysis to examine the relationship between homeownership and societal well‐being. Other studies in this special issue document both public and price costs to owning a home. Taken together, the special issue has important implications for government policies that encourage homeownership.

Details

Journal of Financial Economic Policy, vol. 3 no. 1
Type: Research Article
ISSN: 1757-6385

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