Leaning against the wind: debt financing in the face of adversity

  • We offer evidence of a new stylized feature of corporate financing decisions: the tendency of managers to rely more on debt financing when earnings prospects are poor. We term this 'leaning against the wind' and consider three possible explanations: market timing, precautionary financing, and 'making the numbers'. We find no evidence in favor of the first two hypotheses, and provisionally accept the 'making the numbers' hypothesis that managers who are under pressure because of unrealistically optimistic earnings expectations by analysts and deteriorating real opportunities, will rely more heavily on debt financing to boost earnings per share and return on equity.

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Metadaten
Author:Michael J. Brennan, Holger KraftGND
URN:urn:nbn:de:hebis:30:3-386581
URL:http://ssrn.com/abstract=2696886
DOI:https://doi.org/10.2139/ssrn.2696886
Parent Title (English):SAFE working paper series ; No. 119
Series (Serial Number):SAFE working paper (119)
Publisher:SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Date of Publication (online):2015/11/30
Date of first Publication:2015/11/30
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2015/12/08
Tag:capital structure; financing policy; managerial incentives
Issue:October 30, 2015
Page Number:49
HeBIS-PPN:368523233
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht