File Download
There are no files associated with this item.
Links for fulltext
(May Require Subscription)
- Publisher Website: 10.1016/S0014-2921(97)00106-2
- Scopus: eid_2-s2.0-0345390145
- WOS: WOS:000077018000008
- Find via
Supplementary
- Citations:
- Appears in Collections:
Article: Ownership concentration, risk aversion and the effect of financial structure on investment decisions
Title | Ownership concentration, risk aversion and the effect of financial structure on investment decisions |
---|---|
Authors | |
Issue Date | 1998 |
Citation | European Economic Review, 1998, v. 42, n. 9, p. 1751-1778 How to Cite? |
Abstract | This paper examines the effect of capital structure on investment decisions when the firm is controlled by a large, risk-averse shareholder. Because of under-diversification, the controlling shareholder is more averse to risky projects than atomistic shareholders whose portfolios are fully diversified, and hence the former may under-invest by rejecting projects which are desirable for the latter. We show that this under-investment problem can be mitigated by issuing risky debt because of the 'risk-shifting' effect of debt. The paper demonstrates a unique equilibrium capital structure, involving both risky debt and equity, which is directly linked to the ownership structure. The analysis leads to empirical predictions about how ownership and capital structure are interrelated, and how capital structure is affected by such exogenous factors as the identity of the controlling shareholder and project risk. The existing empirical studies generally support these predictions. |
Persistent Identifier | http://hdl.handle.net/10722/233760 |
ISSN | 2023 Impact Factor: 2.8 2023 SCImago Journal Rankings: 2.251 |
ISI Accession Number ID |
DC Field | Value | Language |
---|---|---|
dc.contributor.author | Zhang, Guochang | - |
dc.date.accessioned | 2016-09-27T07:21:34Z | - |
dc.date.available | 2016-09-27T07:21:34Z | - |
dc.date.issued | 1998 | - |
dc.identifier.citation | European Economic Review, 1998, v. 42, n. 9, p. 1751-1778 | - |
dc.identifier.issn | 0014-2921 | - |
dc.identifier.uri | http://hdl.handle.net/10722/233760 | - |
dc.description.abstract | This paper examines the effect of capital structure on investment decisions when the firm is controlled by a large, risk-averse shareholder. Because of under-diversification, the controlling shareholder is more averse to risky projects than atomistic shareholders whose portfolios are fully diversified, and hence the former may under-invest by rejecting projects which are desirable for the latter. We show that this under-investment problem can be mitigated by issuing risky debt because of the 'risk-shifting' effect of debt. The paper demonstrates a unique equilibrium capital structure, involving both risky debt and equity, which is directly linked to the ownership structure. The analysis leads to empirical predictions about how ownership and capital structure are interrelated, and how capital structure is affected by such exogenous factors as the identity of the controlling shareholder and project risk. The existing empirical studies generally support these predictions. | - |
dc.language | eng | - |
dc.relation.ispartof | European Economic Review | - |
dc.title | Ownership concentration, risk aversion and the effect of financial structure on investment decisions | - |
dc.type | Article | - |
dc.description.nature | link_to_subscribed_fulltext | - |
dc.identifier.doi | 10.1016/S0014-2921(97)00106-2 | - |
dc.identifier.scopus | eid_2-s2.0-0345390145 | - |
dc.identifier.volume | 42 | - |
dc.identifier.issue | 9 | - |
dc.identifier.spage | 1751 | - |
dc.identifier.epage | 1778 | - |
dc.identifier.isi | WOS:000077018000008 | - |
dc.identifier.issnl | 0014-2921 | - |