Corporate Capital Structure, Agency Costs, and Ownership Control: The Case of All-Equity Firms

Authors

  • ANUP AGRAWAL,

  • NANDU J. NAGARAJAN

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    • Division of Economics and Business, North Carolina State University and The Joseph M. Katz Graduate School of Business, University of Pittsburgh, respectively. A part of this research was conducted while the first author was at Baruch College, CUNY. The authors acknowledge grants from the PSC-CUNY Research Foundation and The Joseph M. Katz Graduate School of Business, University of Pittsburgh, respectively. We acknowledge helpful comments from seminar participants at the University of Pittsburgh and the 1986 WFA and FMA meetings. In addition, we would like to thank Stan Baiman, Harry DeAngelo, Harry Evans, Michael Long, Anil Makhija, Gershon Mandelker, Wayne Marr, Harry Newman, Jim Patton, René Stulz, Sheridan Titman, an anonymous referee, and the co-editor, David Mayers, for helpful comments. Arijit Mukherji and Nandini Rajagopalan provided excellent research assistance. We are grateful to librarians at the Patee Library of Penn State University for allowing us to use their proxy database.


ABSTRACT

This paper provides evidence that all-equity firms exhibit greater levels of managerial stockholdings, more extensive family relationships among top management, and higher liquidity positions than a matched sample of levered firms. Further, top managers of all-equity firms with family involvement in corporate operations have greater control of corporate voting rights than managers of all-equity firms without family involvement. These findings are consistent with the interpretation that managerial control of voting rights and family relationships among senior managers are important factors in the decision to eliminate leverage.

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