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This paper aims to investigate whether all-equity firms are a heterogeneous group as it relates to agency costs when compared to a matched sample of levered firms and to contribute toward the understanding of the “low leverage” puzzle and the motivations behind such a perplexing phenomenon.

Propensity score matching (PSM) is used to control for endogeneity issues common to this line of research. Because all-equity firms are self-selecting, it is not possible to conduct a true randomized study. PSM attempts to simulate a randomized study by selecting matching observations with similar propensity scores as the all-equity observations.

Agency costs are not the only explanation leading to the implementation of an all-equity capital structure. The motivation of such structure is strongly influenced by free cash flows (FCF) and growth opportunities (GO), whereby firms that have high levels FCF combined with low GO exhibit higher levels of agency costs versus their levered peers, while those that have low levels of FCF and high GO exhibit no significant difference in agency costs.

A better understanding of why a firm chooses such an extreme capital structure can help investors, auditors and potential future creditors in their decision-making process.

Most prior research treats capital structure as an exogenous variable. By applying PSM, not previously used in prior research, a new methodology is used to address the endogeneity issue related to observational studies such as this one. This paper contributes toward further understanding the perplexing “low-leverage” puzzle often discussed in the financial and accounting literature.

The purpose of this paper is to examine the impact of managerial risk exposure on capital structure selection (net debt, or debt minus cash) as well as return on assets, capital expenditures, research and development expenditures and stock price performance.

The paper compares a sample of 123 all‐equity firms to a set of matching levered firms selected on the basis of industry, market cap and market‐to‐book assets. Managerial incentives are measured using the delta and vega of the manager's stock and option holdings.

Net debt levels decline as CEO wealth sensitivity to stock price changes (delta) increases. However, the paper finds no differences between the all‐equity firms and their levered matching firms in terms of return on assets, capital expenditures, R&D expense, or long run stock price performance.

Findings are consistent with the idea that managerial incentives drive net debt decisions even among all‐equity firms. However, given that there are no differences between the sample firms and their matched firms in terms of investment or stock price performance, the effect of managerial risk aversion appears to be confined to financial policy.

The paper uses modern methods for measuring managerial risk exposure to revisit the literature on all‐equity firms, and show that managerial risk exposure affects the net debt decision in these firms.

The purpose of this paper is to provide new insights into the low-leverage phenomenon by analyzing the dynamics of firms’ financing policies. The authors explore three theoretical explanations of firms’ motivations to switch among different levels of debt aversion: financial constraints, financial flexibility and financial distress.

The authors apply a multilevel mixed-effects model to a panel data sample of 9,005 US listed firms during 1987-2014. To use a multinomial ordered logit model, the authors break down the low-leverage firms into several levels of debt aversion.

The empirical analysis provides four main findings. First, there is a dynamic behavior regarding leverage policy: after five years, 39.4 per cent of initial zero debt firms remain all-equity firms, 14.2 per cent are leveraged firms and approximately 19.7 per cent still adopt a low-leverage policy. Second, greater asset volatility increases the expected likelihood that firms will be debt averse. Third, when firms grow bigger and older, they show a greater likelihood of moving toward a higher leverage level. Fourth, results derived from the investment variables of research and development, acquisitions, and capital expenditure provide strong evidence in favor of the financial flexibility hypothesis.

These findings suggest that conservative debt policy is integrated with corporate investment decisions.

This paper contributes to extant literature by emphasizing the dynamic process associated with a low-leverage policy, unlike prior studies that focus on the determinants and characteristics of low-leverage firms. It also applies an econometric methodology that is new to the field: multilevel models.

Scholars have examined the importance of a firm's dividend policy through two competing paradigms: the signalling hypothesis and the free cash‐flow hypothesis. It has been argued that our understanding of dividend policy is hindered by the lack of a model that integrates the two hypotheses. The purpose of this paper is to address this by developing a theoretical dividend model that combines the signalling and free cash‐flow motives. The objective of the analysis is to shed light on the complex relationship between dividend policy, managerial incentives and firm value.

In order to consider the complex nature of dividend policy, a dividend signalling game is developed, in which managers possess more information than investors about the quality of the firm (asymmetric information), and may invest in value‐reducing projects (moral hazard). Hence, the model combines signalling and free cash‐flow motives for dividends. Furthermore, managerial communication and reputation effects are incorporated into the model.

Of particular interest is the case where a firm may need to cut dividends in order to invest in a new value‐creating project, but where the firm will be punished by the market, since investors are behaviourally conditioned to believe that dividend cuts are bad news. This may result in firms refusing to cut dividends, hence passing up good projects. This paper demonstrates that managerial communication to investors about the reasons for the dividend cut, supported by managerial reputation effects, may mitigate this problem. Real world examples are provided to illustrate the complexity of dividend policy.

This work has been inspired by, and develops that of Fuller and Thakor, and Fuller and Blau, which considers the signalling and free cash‐flow motives for dividends. Whereas those authors consider the case where firms only have new negative net present value (NPV) projects available (so that dividend increases provide unambiguously positive signals to the market in both the signalling and free cash‐flow cases), in this paper's model, the signals may be ambiguous, since firms may need to cut dividends to take positive NPV projects. Hence, the model assists in understanding the complexity of dividend policy.

A previous paper in this journal discussed how to estimate the appropriate rate that should be used to evaluate investment projects. In this paper, the same theme is extended to discuss why projects might attract hurdle rates that are higher than the cost of capital. The answer involves discussion of the topic of real options, which may provide a rigorous explanation of how companies can value flexibility in capital budgeting. This paper discusses the gap between the hurdle rate and the cost of capital and explores possible explanations for the rational use of additional barriers before accepting capital projects.

This paper aims to derive insights about optimal managerial compensation and firm capital structure in unionized firms.

This paper uses applied game theory to address problems of CEO motivation in companies with unionized workforces.

Managers can use high levels of debt and costly bankruptcy to win wage concessions from workers. Alternatively, workers can obstruct management in the detection of poor work. CEO compensation that encourages rent sharing may reduce union hostility and associated deadweight losses. Shareholder value may be maximized by CEO incentive contracts with limited upsides, lower levels of pay, and some entrenchment protections.

This is the only study to use applied game theory to look at how CEO pay and capital structure affects the productivity of a unionized workforce.

The purpose of this paper is to investigate the effect of diversification on returns of firms in chemical and oil industries.

In order to control for market effect, industry effect, and effects of endogenous variables of a sample firm that lead the firm to decide to diversify or refocus on stock returns, three‐factor asset‐pricing models introduced by Fama and French are used in each industry.

It is found that diversified firms have significantly higher returns than focused firms in both chemical and oil industries. It is also found that the three‐factor model explains much of the variation in the average stock returns for both focused firms and diversified firms, which is consistent with Fama and French.

Provides new evidence for the effect of diversification on firm returns in oil and chemical industries.

The purpose of this paper is to examine the nature of the relationship between business risk and financial leverage. While past theoretical and empirical studies on this topic use similar variables, overall, their findings are inconclusive. In this paper, the author contends this is partially due to inappropriate proxies for business risk that are commonly used in these research papers. To correct for this misspecification, this paper proposes an alternative proxy for business risk that is isolated from the effects of financial leverage.

Past research on the relationship between business risk and financial leverage uses some variations in a firm’s operating cash flow as a proxy for business risk. This proxy cannot solely reflect business risk and may very well be affected by the level of financial leverage, especially for financially distressed firms. This paper proposes an alternative proxy for business risk that is isolated from the effects of financial leverage. This proxy is the cost of capital of an all-equity firm. The theoretical model developed in this paper is based on deriving the optimum level of debt as a function of business risk in the context of the Modigliani and Miller Proposition II model.

The findings show a positive linkage between business risk and financial leverage. This relationship is robust to the various forms the cost of financial distress function may take.

The mixed findings in past research papers regarding the relationship between business risk and financial leverage are mainly due to “inappropriate” measures of business risk that do not only reflect one firm attribute and are contaminated with other factors mainly financial leverage. As such, since the variable of interest is misspecified, the outcome of these studies cannot be credible. This paper attempts to correct for such misspecification by proposing a proxy that only reflects business risk. In addition, the proposed model is based on the widely acceptable Modigliani and Miller static theory of capital structure.

This study aims to investigate the extent and nature of corporate governance reporting (CGR) in corporate annual reports of Bangladesh. The aim of the study to test empirically the relationship between corporate governance (CG) and CGR by the listed companies in Bangladesh. The CG examined the proportion of independent directors, board leadership structure, board size, ownership structure and audit committee size.

The study is based on a sample of 86 listed non-financial companies in Dhaka stock exchanges (DSE) from the period of 2015-2017 and all the companies are selected by judgment Sampling. The study has been used as an unweighted relative disclosure index for measuring CGR.

The empirical results indicate that board leadership structure (BLS) is positively associated with the level of CGR. In contrast, the percentage of equity owned by the insiders to all equity of the firm is negatively associated with the level of CGR.

Findings of this study have important implications for regulatory authority, enforcement agencies such as Institute of Cost and Management Accountants of Bangladesh, Institute of Chartered Accountants of Bangladesh, Bangladesh Securities and Exchange Commission, DSE, policymakers, shareholders and others who have an interemaammast in CG.

Finding of the study will be a benchmark for policymakers and implementers in torching the avenues of improvement in raising the level of CG reporting.

The purpose of this paper is to test whether product market strategies have any effect on managerial shareholdings, leverage usage and firm diversification.

The paper focuses on a sample of US manufacturing firms and defines variables to proxy for product quality, ownership, financing and diversification. Regressions were run to test hypotheses.

A positive relation was found between product quality and managerial ownership and a negative relation between product quality and use of leverage. Also, controlling for firm size, it was found that firm focus is concave in managerial shareholdings.

Although the paper provides a path towards understanding intra‐industry variations in corporate capital structures, it is recognized that additional research on such variations is warranted.

The paper provides an explanation for the evidence that all‐equity firms are distinguished by large management shareholdings. In fact, one such firm, Microsoft Corporation, provides one of the best examples of the paper's argument on why concentrated managerial shareholdings and financial slack facilitate an aggressive approach to protect a firm's margins.

This paper contributes to the literature, which relates product market competition to corporate capital structure and uses a different regression model than used in prior research. Specifically, the quasi‐likelihood approach for fractional variables was used. Ownership variables are fractional variables that are not censored or logistic normally distributed, as presumed in some prior literature.