Managerial Incentives and the Efficiency of Capital Structure in U.S. Commercial Banking

Arbeitspapier

We extend the literature on the effects of managerial entrenchment to consider how safety-net subsidies and financial distress costs interact with managerial incentives to influence capital structure in U.S. commercial banking. Using cross-sectional data on publicly traded, highest-level U.S. bank holding companies, we find empirical evidence of Marcus? proposition (1984) that there are dichotomous strategies for value maximization?one involving relatively higher financial leverage and the other, lower financial leverage. We find that a less levered capital structure is associated with higher charter value and vice versa. Moreover, differences in charter value result in dichotomous strategies for managerial entrenchment: under-performing, less levered firms hold too little capital while under-performing, more levered firms hold too much.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2004-01

Classification and Topics

• Classification: Wirtschaft ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ; Firm Behavior: Theory ; Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: capital allocation ; efficiency ; agency problems ; corporate control ; charter value ; Kapitalstruktur ; Führungskräfte ; Ökonomischer Anreiz ; Agency Theory ; Unternehmenswert ; Bank ; Allokationseffizienz ; Theorie ; Vereinigte Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hughes, Joseph P. ; Lang, William W. ; Moon, Choon-Geol ; Pagano, Michael S.
• Event: Veröffentlichung
• (who): Rutgers University, Department of Economics
• (where): New Brunswick, NJ
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/23180
• Last update: 10.03.2025, 11:43 AM CET