This paper investigates the eﬀect of committed ownership on the ﬁnancing decisions of the ﬁrm. Committed owners are purpose-driven and committed to a long-term mission extending beyond proﬁt-making. Moreover, they are expected to maintain favorable relations with stakeholders since it strengthens the credibility of commitment and aligns interests toward the deﬁned purpose. On a large number of U.S. listed ﬁrms, this paper shows that committed owners employ a more conservative capital structure than institutional owners. This is possibly attributable to the commitment role of equity, that is, a signal of dedication to upholding implicit contracts with stakeholders by assuming less risk. By taking on less debt, committed owners encourage the choice of stewardship among stakeholders and promote trust and pro-organizational behavior. What is more, the analysis shows that committed owners adjust to the target leverage at a higher speed than do institutional owners. This could be indicative of the close attention paid by committed owners to the maintenance of low leverage ratios, but also of a narrower optimal leverage range. Given the concerns of committed owners to demonstrate a credible devotion to the purpose and maintain favorable relations with stakeholders, default costs are likely to be higher than for institutional owners, thus, deviating from target leverage is costlier for committed owners.
|Cand.merc.aef Applied Economics and Finance, (Kandidatuddannelse) Afsluttende afhandlingCand.merc.fsm Finance and Strategic Management, (Kandidatuddannelse) Afsluttende afhandling
|Casper Berg Lavmand Larsen & Thomas Poulsen