Hostname: page-component-f554764f5-fr72s Total loading time: 0 Render date: 2025-04-18T17:30:08.413Z Has data issue: false hasContentIssue false
  • English
  • Français

Simultaneous Determination of Insider Ownership, Debt, and Dividend Policies

Published online by Cambridge University Press:  06 April 2009

Gerald R. Jensen ,
Donald P. Solberg  and
Thomas S. Zorn
Get access Rights & Permissions [Opens in a new window]

Abstract

We examine the determinants of cross-sectional differences in insider ownership, debt, and dividend policies. These policies are related not only directly, but also indirectly, through their relationship with operating characteristics of firms. To distinguish these effects, we examine the determinants of the three policy choices within a system of equations. Our empirical results support the hypothesis that levels of insider ownership differ systematically across firms. Further, high insider ownership firms choose lower levels of both debt and dividends. Finally, the effects of profitability, growth, and investment spending on debt and dividend policy support a modified “pecking order” hypothesis.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 27 , Issue 2 , June 1992 , pp. 247 - 263
Copyright
Copyright © School of Business Administration, University of Washington 1992

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

Altman, E. I. “A Further Empirical Investigation of the Bankruptcy Cost Question.” Journal of Finance, 39 (09 1984), 1067–1089.CrossRefGoogle Scholar
Amihud, Y., and Lev, B.. “Risk Reduction as a Managerial Motive for Conglomerate Mergers.” Bell Journal of Economics, 12 (Autumn 1981), 605–617.CrossRefGoogle Scholar
Barnea, A.; Haugen, R.; and Senbet, L.. Agency Problems and Financial Contracting. Englewood Cliffs, NJ: Prentice Hall (1985).Google Scholar
Barnett, V., and Lewis, T.. Outliers in Statistical Data, Second Edition. New York: Wiley (1984).Google Scholar
Baskin, J. “An Empirical Investigation of the Pecking Order Hypothesis.” Financial Management, 18 (Spring 1989), 26–35.CrossRefGoogle Scholar
Baxter, N. “Leverage, Risk of Ruin, and the Cost of Capital.” Journal of Finance, 22 (09 1967), 395–403.Google Scholar
Beck, P., and Zorn, T.. “Managerial Incentives in a Stock Market Economy.” Journal of Finance, 37 (12 1982), 1151–1167.CrossRefGoogle Scholar
Bhattacharya, S. “Imperfect Information, Dividend Policy, and ‘The Bird in the Hand’ Fallacy.” Bell Journal of Economics, 10 (Spring 1979), 259–270.CrossRefGoogle Scholar
Bradley, M.; Jarrell, G. A.; and Kim, H. E.. “On the Existence of an Optimal Capital Structure: Theory and Evidence.” Journal of Finance, 39 (07 1984), 857–880.CrossRefGoogle Scholar
Carleton, W., and Silberman, I. H.. “Joint Determination of Rate of Return and Capital Structure: An Econometric Analysis.” Journal of Finance, 32 (06 1977), 811–821.CrossRefGoogle Scholar
Cornell, B., and Shapiro, A. C.. “Corporate Stakeholders and Corporate Finance.” Financial Management, 16 (Spring 1987), 5–14.CrossRefGoogle Scholar
Crutchley, C., and Hansen, R.. “A Test of the Agency Theory of Managerial Ownership, Corporate Leverage and Corporate Dividends.” Financial Management, 18 (Winter 1989), 36–46.CrossRefGoogle Scholar
DeAngelo, H., and Masulis, R.. “Optimal Capital Structure under Corporate and Personal Taxation.” Journal of Financial Economics, 8 (03 1980), 90–118.CrossRefGoogle Scholar
Demsetz, H., and Lehn, K.. “The Structure of Corporate Ownership: Causes and Consequences.” Journal of Political Economy, 93 (12 1985), 1155–1177.CrossRefGoogle Scholar
Dhrymes, P. J., and Kurz, M.. “Investment, Dividend and External Finance Behavior of Firms.” In Determinants of Investment Behavior, Ferber, Robert, ed. New York: National Bureau of Economic Research (1967).Google Scholar
Donaldson, G. “Corporate Debt Capacity: A Study of Corporate Debt Policy and the Determination of Corporate Debt Capacity.” Harvard Graduate School of Business (1961).Google Scholar
Ferri, M., and Jones, W.. “Determinants of Financial Structure: A New Methodological Approach.” Journal of Finance, 34 (06 1979), 631–644.CrossRefGoogle Scholar
Flath, D., and Knoeber, C. R.. “Taxes, Failure Costs, and Optimal Industry Capital Structure: An Empirical Test.” Journal of Finance, 35 (03 1980), 99–117.CrossRefGoogle Scholar
Friend, I., and Hasbrouck, J.. “Determinants of Capital Structure.” In Research in Finance, Vol. 7, Chen, Andy, ed. Greenwich, CT: JAI Press, Inc., (1987).Google Scholar
Friend, I., and Lang, L. H. P.. “An Empirical Test of the Impact of Managerial Self–interest on Corporate Capital Structure.” Journal of Finance, 43 (06 1988), 271–281.Google Scholar
Gordon, R. H., and Malkiel, B. G.. “Corporate Finance.” In How Taxes Affect Economic Behavior, Aaron, H. and Pechman, J., eds. Washington, D.C.: The Brookings Institution (1981).Google Scholar
Hurdle, G. “Leverage, Risk, Market Structure and Profitability.” Review of Economics and Statistics, 56 (11 1974): 478–485.CrossRefGoogle Scholar
Jalilvand, A., and Harris, R. S.. “Corporate Behavior in Adjusting to Capital Structure and Dividend Targets: An Econometric Study.” Journal of Finance, 39 (03 1984), 127–145.CrossRefGoogle Scholar
Jensen, G., and Zom, T.. “An Empirical Examination of The Capital Structure Decision in a Simultaneous Equations Framework.” Working Paper, Univ. of Nebraska Dept. of Finance (1988).Google Scholar
Jensen, M. “Agency Costs of Free Cash Flow, Corporate Finance and Takeovers.” American Economic Review, 76 (05 1986), 323–329.Google Scholar
Jensen, M., and Meckling, W.. “Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure.” Journal of Financial Economics, 4 (10 1976), 305–360.CrossRefGoogle Scholar
Kester, W. C. “Capital and Ownership Structure: A Comparison of United States and Japanese Manufacturing Corporations.” Financial Management, 16 (Spring 1986), 5–16.CrossRefGoogle Scholar
Kim, H. E. “A Mean–Variance Theory of Optimal Capital Structure and Corporate Debt Capacity.” Journal of Finance, 33 (03 1978), 789–810.Google Scholar
Kim, S. W, and Sorensen, E. H.. “Evidence on the Impact of the Agency Costs of Debt on Corporate Debt Policy.” Journal of Financial and Quantitative Analysis, 21 (06 1986), 131–144.CrossRefGoogle Scholar
Kmenta, J.Elements of Econometrics. New York: MacMillan Publ. Co. Inc. (1971).Google Scholar
Kraus, A., and Litzenberger, R.. “A State-Preference Model of Optimal Financial Leverage.” Journal of Finance, 28 (09 1973), 911–922.Google Scholar
Leland, H., and Pyle, D.. “Informational Asymmetries, Financial Structure, and Financial Intermediation.” Journal of Finance, 32 (05 1977), 371–388.CrossRefGoogle Scholar
Lewellen, W. G. “A Pure Financial Rationale for the Conglomerate Merger.” Journal of Finance, 26 (05 1971), 521–545.CrossRefGoogle Scholar
Lintner, J. “Some New Perspectives on Tests of CAPM and Other Capital Asset Pricing Models and Issues of Market Efficiency.” In Economic Activity and Finance, Blume, M. E., Crockett, J., and Taubman, P., eds. Cambridge, MA: Ballinger Publ. Co. (1982), 129–162.Google Scholar
Long, M. S., and Malitz, I. B.. “Investment Patterns and Financial Leverage.” In Corporate Capital Structures in the United States, Friedman, B. M., ed. Chicago: The Univ. of Chicago Press, NBER (1985).Google Scholar
Marsh, P. “The Choice between Debt and Equity: An Empircal Study.” Journal of Finance, 37 (03 1982), 121–144.CrossRefGoogle Scholar
McCabe, G. M. “The Empirical Relationship between Investment and Financing: A New Look.” Journal of Financial and Quantitative Analysis, 14 (03 1979), 119–135.CrossRefGoogle Scholar
Miller, M., and Rock, K.. “Dividend Policy under Asymmetric Information.” Journal of Finance, 40 (09 1985), 1031–1052.CrossRefGoogle Scholar
Myers, S. “Determinants of Corporate Borrowing.” Journal of Financial Economics, 5 (11 1977), 147–176.CrossRefGoogle Scholar
Myers, S. “The Capital Structure Puzzle.” Journal of Finance, 39 (07 1984), 575–592.CrossRefGoogle Scholar
Myers, S., and Majluf, N. S.. “Corporate Financing and Investment Decisions when Firms Have Information That Investors Do Not Have.” Journal of Finance, 39 (06 1984), 187–221.Google Scholar
Nakamura, A., and Nakamura, M.. “On the Firm's Production, Capital Structure, and Demand for Debt.” Review of Economics and Statistics, 64 (08 1982), 384–393.CrossRefGoogle Scholar
Peterson, P. P., and Benesh, G. A.. “A Reexamination of the Empirical Relationship between Investment and Financing Decisions.” Journal of Financial and Quantitative Analysis, 18 (12 1983), 439–453.CrossRefGoogle Scholar
Pinches, G. E., and Mingo, K. A.. “A Multivariate Analysis of Industrial Bond Ratings.” Journal of Finance, 28 (03 1973), 1–18.CrossRefGoogle Scholar
Ravid, S. A. “On Interactions of Production and Financial Decisions.” Financial Management, 17 (Autumn 1988), 87–99.CrossRefGoogle Scholar
Ross, S. “The Determinants of Financial Structure: The Incentive Signalling Approach.” Bell Journal of Economics, 8 (Spring 1977), 23–40.CrossRefGoogle Scholar
Rozeff, M. “Growth, Beta and Agency Costs as Determinants of Dividend Payout Ratios.” Journal of Financial Research, 3 (Fall 1982), 249–259.CrossRefGoogle Scholar
Scott, J. H. Jr, “A Theory of Optimal Capital Structure. Bell Journal of Economics, 7 (Spring 1976), 33–53.CrossRefGoogle Scholar
Scott, J. H. “Bankruptcy, Secured Debt, and Optimal Capital Structure.” Journal of Finance, 32 (03 1977), 33–53.CrossRefGoogle Scholar
Titman, S. “Determinants of Capital Structure: An Empirical Analysis.” Working Paper, Univ. of California at Los Angeles (1982).Google Scholar
Titman, S., and Wessels, R.. “The Determinants of Capital Structure Choice.” Journal of Finance, 43 (03 1988), 1–19.CrossRefGoogle Scholar
Toy, N.; Stonehill, A.; Remmers, L.; Wright, R.; and Beekhuisen, T.. “A Comparative International Study of Growth, Profitability, and Risk as Determinants of Corporate Debt Ratios in the Manufacturing Sector.” Journal of Financial and Quantitative Analysis, 9 (11 1974), 875–886.CrossRefGoogle Scholar
Turnbull, S. M. “Debt Capacity.” Journal of Finance, 34 (09 1979), 931–940.CrossRefGoogle Scholar
Wilson, P. “The Relative Information Content of Accruals and Cash Flows: Combined Evidence at the Earnings Announcement and Annual Report Release Date.” Journal of Accounting Research, 24 (Spring Supplement 1986), 165–200.CrossRefGoogle Scholar