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Managerial Stock Ownership and Debt Diversification

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  • Nemiraja Jadiyappa
  • Namrata Saikia
  • Bhavik Parikh

Abstract

In this study, we examine the impact of managerial behavior on the debt diversification decisions of firms using the agency cost of debt framework. We hypothesize that managers with higher equity ownership should favor debt diversification to avoid efficient monitoring by debt holders and thus, be able to engage in risk‐shifting behavior. Our empirical results provide strong evidence for a positive association between managerial ownership and debt diversification. This relationship is observed to be stronger for smaller firms, which are traditionally more susceptible to the moral hazard problem. Our results remain robust for an alternate measure of debt diversification.

Suggested Citation

  • Nemiraja Jadiyappa & Namrata Saikia & Bhavik Parikh, 2020. "Managerial Stock Ownership and Debt Diversification," International Review of Finance, International Review of Finance Ltd., vol. 20(3), pages 747-755, September.
    • Handle: RePEc:bla:irvfin:v:20:y:2020:i:3:p:747-755
    DOI: 10.1111/irfi.12229
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    References listed on IDEAS

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