We investigate the effects of manager characteristics on capital structure. We first develop a dynamic structural model that incorporates managerial discretion in effort and financing, as well as agency conflicts between managers and outside investors. We derive the manager’s dynamic contract and implement it through financial securities. This leads to a dynamic capital structure for the firm c...

The export sector is considered an important sector for developing countries; hence it is important to understand the behavior of exporting firms. This paper looks at the financial structure of such firms and investigates plausible relationships between export status and leverage. If product demand from abroad has a low correlation with domestic demand, we would expect export-intensive firms to...

In many settings, including venture capital …nancing, mergers and acquisitions, and lease competition, the structure of the contracts (debt versus equity) over which …rms compete di¤ers. Furthermore, the structure of the contract a¤ects the future incentives of the …rm to engage in value-creating activities by potentially diluting e¤ort or investment incentives. We study, both theoretically and...

This study examines the impact of capital structure on agency costs in 211 non-financial Chinese listed firms for the period 1999-2001. There are two main findings. (1) Firms with high debt to asset ratio have high ratio of annual sales to total assets and high ratio of return-on-equity. If a firm has a high debt to asset ratio, creditors are much more concerned about the payment of interest an...

This paper incorporates the cost of adjustment between observed and optimal leverage in explaining the variation in firm’s equity or bank-debt financing investments. Using a dynamic adjustment approach identifies the determinants to capital structure between different financial systems. In relation to firm sales U.K and U.S firms have 50-100 percent more equity financing than Swedish firms depe...

This paper investigates the effects of heterogeneous beliefs about future firm earnings and agency conflicts on corporate capital structure. We develop a dynamic structural model in which the manager of a firm has discretion in financing and effort and receives dynamic incentives through an explicit contract with shareholders in the presence of heterogeneous beliefs between the two parties. The...

We thank an anonymous referee, an Associate Editor, Gurdip Bakshi, and Jay Huang for their valuable comments and suggestions. We also thank Henry Cao, Hua He, Hayne Leland, Mark Rubinstein, and Matt Spiegel for their advice on an earlier version where a static model was developed. Abstract This paper develops a model in which an optimal capital structure and an optimal debt maturity are jointly...

I develop a novel link between frictions in international financial markets and fiscal procyclicality. Complementing existing evidence, A decomposition of government expenditure into social spending and public good spending reveals that the cyclical correlation of social spending exhibits the biggest differences across countries. I build a small open economy model with income inequality, endoge...

We review and extend recent contingent claims models of capital structure. We focus on two models with analytic formulas in perpetual horizonLeland (1994) and Mauer and Sarkar (2004). We implement the investment option in both models in finite horizon with a numerical lattice while maintaining the analytic structure for the capital structure decisions in the second stage by maintaining the perp...