Prior research has documented both positive (John and Litov, 2009) and negative (Berger, Ofek, and Yermack, 1997) relationships between managerial entrenchment and the use of debt. This paper further investigates the impact of corporate governance on firm’s leverage by taking into account the substitution effect of different governance mechanisms. Consistent with John and Litov (2009), we find that antitakeover provisions have a positive effect on firm’s leverage. However, this effect disappears when we control for the interaction effect between antitakeover provisions and board power, measured by board independence. More specifically, we find that entrenched managers operate highly leveraged firms only if they are exposed to powerful boards. The result on this positive relationship between firm’s leverage and the interaction of board power and antitakeover provisions continues to hold even after we consider other governance variables.
Field of Research: Finance
Key Words: Antitakeover Provisions, Board Power, Firm Leverage
JEL Codes: G32 and G34
Total Reviews: 0
After completion purchase and payment you will get an email with download link of book. You can download this book within 24 hours. Be remember you can't download this book after 24 hours.
There are no reviews yet.