Managerial Incentives and Corporate Investment and Financing Decisions




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    • Baruch College (CUNY) and the Graduate School of Business, University of Pittsburgh, respectively. This work has benefited from helpful suggestions of colleagues at seminars at Baruch College, Georgia Tech., McGill, McMaster, Rutgers, and University of Pittsburgh. Special thanks go to R. Bruner, G. Comiskey, L. Fisher, J. Jaffe, R. Kumar, C. Muscarella, R. Nachtmann, N. Nagarajan, H. Newman, A. Rosenfeld, R. Sant, K. Schipper, B. Stone, N. Stoughton, S. Thomadakis, A. Vora, and R. Watts. We would also like to thank a referee of this Journal for his helpful comments. This research has been supported by a grant from the City University of New York PSC-CUNY Research Award Program.


This paper examines the relationship between common stock and option holdings of managers and the choice of investment and financing decisions by firms. The authors find support for the hypothesis of a positive relationship between the security holdings of managers and the changes in firm variance and in financial leverage. This conclusion is based on samples of acquiring and divesting firms. The findings are consistent with the hypothesis that executive security holdings have a role in reducing agency problems.