Abstract
We develop an equilibrium model where cash holdings, costly refinancing policies, and managerial incentives are jointly determined to quantify the market's influence on management's ex ante behavior. We also derive a general formula that shows how agency and financing distortions shape payouts and compensation, two easily measured quantities. Our calibrated model estimates agency conflicts are nearly 10 times more severe than financial frictions for US public firms. Our analysis suggests that cutting corporate income taxes while introducing a tax on refinancing can reduce the relative severity of agency.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
