corporate leverage how much do managers really matter.pdfVIP

Corporate Leverage: How Much Do Managers Really Matter? Murray Z. Frank and Vidhan K. Goyal August 21, 2007 ABSTRACT This paper studies the effect of top managers on corporate financing decisions. Differences among CEOs account for a great deal of the variation in leverage among firms. After a CEO is forced out, leverage typically declines. Firms that offer higher pay-for-performance to the top executives adjust leverage to target more rapidly. CEO personal characteristics are not closely connected to corporate leverage choices. To some extent the CEO may be serving as a proxy for an entire management team. The CFO seems to play at least as important a role as the CEO in determining corporate leverage. JEL classification : G32 Keywords: Capital structure, behavioral finance, executive compensation con- tracts, corporate governance. Murray Z. Frank is the Piper Jaffray Professor of Finance, Carlson School of Management, University of Minnesota, Minneapolis, MN 55455. E-mail: Murray.Frank@. Vidhan K. Goyal is with the Department of Finance, Hong Kong University of Science and Technol- ogy, Clear Water Bay, Kowloon, Hong Kong. Phone: +852 2358-7678, Fax: +852 2358-1749, E-mail: goyal@ust.hk. Acknowledgments: We thank Raj Aggrawal, Paul Povel, Michael Roberts, Masako Ueda, and partici- pants at the European Central Bank, Helsinki School of Economics, South Carolina, and the Minnesota- Wisconsin Corporate Finance Conference for helpful comments. Murray Z. Frank thanks Piper Jaffray for financial support. Vidhan K. Goyal thanks the Research Grants Council of Hong Kong for financial c suppo