The Disciplining Role of Leverage in Dutch Firms

A. de Jong

Research output: Working paperDiscussion paperOther research output

612 Downloads (Pure)

Abstract

In this study we investigate the role of leverage in disciplining overinvestment problems.We measure the relationships between leverage, Tobin s q and corporate governance characteristics for Dutch listed firms.Besides, our empirical analysis tests for determinants of leverage from tax and bankruptcy theories.Representing growth opportunities, q is expected to be an agency-based determinant of leverage.Simultaneously, q represents firm value, which is determined by leverage and governance structures.We test a structural equations model in which we deal with this simultaneous nature of the relation between leverage and q.Our results indicate that Dutch managers avoid the disciplining role of debt, when they are most likely to overinvest.Leverage is mainly determined by tax advantages and bankruptcy costs.In addition, we test the impact of leverage on excess investment.We do not find a difference in the influence of leverage on investment between potential overinvestors and other firms.This confirms that the disciplinary role of leverage in Dutch firms is absent.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages38
Volume2001-48
Publication statusPublished - 2001

Publication series

NameCentER Discussion Paper
Volume2001-48

Fingerprint

Leverage
Tax
Growth opportunities
Bankruptcy costs
Corporate governance
Managers
Debt
Bankruptcy
Structural equation model
Governance structure
Investment potential
Overinvestment
Firm value
Empirical analysis

Keywords

  • agency theory
  • corporate growth
  • capital structure
  • corporate governance
  • leverage

Cite this

de Jong, A. (2001). The Disciplining Role of Leverage in Dutch Firms. (CentER Discussion Paper; Vol. 2001-48). Tilburg: Finance.
de Jong, A. / The Disciplining Role of Leverage in Dutch Firms. Tilburg : Finance, 2001. (CentER Discussion Paper).
@techreport{940ddf9b7e19460cbe52dd24c1bcf8f4,
title = "The Disciplining Role of Leverage in Dutch Firms",
abstract = "In this study we investigate the role of leverage in disciplining overinvestment problems.We measure the relationships between leverage, Tobin s q and corporate governance characteristics for Dutch listed firms.Besides, our empirical analysis tests for determinants of leverage from tax and bankruptcy theories.Representing growth opportunities, q is expected to be an agency-based determinant of leverage.Simultaneously, q represents firm value, which is determined by leverage and governance structures.We test a structural equations model in which we deal with this simultaneous nature of the relation between leverage and q.Our results indicate that Dutch managers avoid the disciplining role of debt, when they are most likely to overinvest.Leverage is mainly determined by tax advantages and bankruptcy costs.In addition, we test the impact of leverage on excess investment.We do not find a difference in the influence of leverage on investment between potential overinvestors and other firms.This confirms that the disciplinary role of leverage in Dutch firms is absent.",
keywords = "agency theory, corporate growth, capital structure, corporate governance, leverage",
author = "{de Jong}, A.",
note = "Pagination: 38",
year = "2001",
language = "English",
volume = "2001-48",
series = "CentER Discussion Paper",
publisher = "Finance",
type = "WorkingPaper",
institution = "Finance",

}

de Jong, A 2001 'The Disciplining Role of Leverage in Dutch Firms' CentER Discussion Paper, vol. 2001-48, Finance, Tilburg.

The Disciplining Role of Leverage in Dutch Firms. / de Jong, A.

Tilburg : Finance, 2001. (CentER Discussion Paper; Vol. 2001-48).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - The Disciplining Role of Leverage in Dutch Firms

AU - de Jong, A.

N1 - Pagination: 38

PY - 2001

Y1 - 2001

N2 - In this study we investigate the role of leverage in disciplining overinvestment problems.We measure the relationships between leverage, Tobin s q and corporate governance characteristics for Dutch listed firms.Besides, our empirical analysis tests for determinants of leverage from tax and bankruptcy theories.Representing growth opportunities, q is expected to be an agency-based determinant of leverage.Simultaneously, q represents firm value, which is determined by leverage and governance structures.We test a structural equations model in which we deal with this simultaneous nature of the relation between leverage and q.Our results indicate that Dutch managers avoid the disciplining role of debt, when they are most likely to overinvest.Leverage is mainly determined by tax advantages and bankruptcy costs.In addition, we test the impact of leverage on excess investment.We do not find a difference in the influence of leverage on investment between potential overinvestors and other firms.This confirms that the disciplinary role of leverage in Dutch firms is absent.

AB - In this study we investigate the role of leverage in disciplining overinvestment problems.We measure the relationships between leverage, Tobin s q and corporate governance characteristics for Dutch listed firms.Besides, our empirical analysis tests for determinants of leverage from tax and bankruptcy theories.Representing growth opportunities, q is expected to be an agency-based determinant of leverage.Simultaneously, q represents firm value, which is determined by leverage and governance structures.We test a structural equations model in which we deal with this simultaneous nature of the relation between leverage and q.Our results indicate that Dutch managers avoid the disciplining role of debt, when they are most likely to overinvest.Leverage is mainly determined by tax advantages and bankruptcy costs.In addition, we test the impact of leverage on excess investment.We do not find a difference in the influence of leverage on investment between potential overinvestors and other firms.This confirms that the disciplinary role of leverage in Dutch firms is absent.

KW - agency theory

KW - corporate growth

KW - capital structure

KW - corporate governance

KW - leverage

M3 - Discussion paper

VL - 2001-48

T3 - CentER Discussion Paper

BT - The Disciplining Role of Leverage in Dutch Firms

PB - Finance

CY - Tilburg

ER -

de Jong A. The Disciplining Role of Leverage in Dutch Firms. Tilburg: Finance. 2001. (CentER Discussion Paper).