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Managerial incentives and corporate leverage: evidence from the United Kingdom

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  • Chrisostomos Florackis
  • Aydin Ozkan

Abstract

This paper investigates the effect of managerial incentives and corporate governance on capital structure using a large sample of UK firms during the period 1999–2004. The analysis revolves around the view that managerial incentives are important in determining a firm's leverage. However, we argue that the exact impact of these incentives on leverage is likely to be determined by firm‐specific governance characteristics. To conduct our investigation, we construct a simple corporate governance measure using detailed ownership and governance information. We present evidence of a significant non‐monotonic relationship between executive ownership and leverage. There is also strong evidence suggesting that corporate governance practices have a significant impact on leverage. More importantly, the results reveal that the nature of the relation between executive ownership and leverage depends on the firm's corporate governance structure.

Suggested Citation

  • Chrisostomos Florackis & Aydin Ozkan, 2009. "Managerial incentives and corporate leverage: evidence from the United Kingdom," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(3), pages 531-553, September.
    • Handle: RePEc:bla:acctfi:v:49:y:2009:i:3:p:531-553
    DOI: 10.1111/j.1467-629X.2009.00296.x
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