Managerial Entrenchment and Financing Decisions

Under some specificcircumstances , a partially separating equilibrium is obtained . That is, talented managers with low relocation cost will choose debt finance, talented managers with high relocation and untalented managers will choose equity finance.

The basic motivation for these behaviors is that managers choose debt finance for profit sharing and managers choose equity finance in order to entrench themselves . Further, we find managers\' ownership share will affect the choice of capital structure . A proportion of management ownership can be found at which managers are indifferent about whether to entrench themselves or share profits.