Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5091412 | Journal of Banking & Finance | 2006 | 38 Pages |
Abstract
Corporate governance theory predicts that leverage affects agency costs and thereby influences firm performance. We propose a new approach to test this theory using profit efficiency, or how close a firm's profits are to the benchmark of a best-practice firm facing the same exogenous conditions. We are also the first to employ a simultaneous-equations model that accounts for reverse causality from performance to capital structure. We find that data on the US banking industry are consistent with the theory, and the results are statistically significant, economically significant, and robust.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Allen N. Berger, Emilia Bonaccorsi di Patti,