TY  - UNPD
A1  - Brennan, Michael J.
A1  - Kraft, Holger
T1  - Financing asset growth : [version 11 august 2013]
T2  - SAFE working paper series ; No. 26
N2  - In this paper we provide new evidence that corporate financing decisions are associated with managerial incentives to report high equity earnings. Managers rely most heavily on debt to finance their asset growth when their future earnings prospects are poor, when they are under pressure due to past declines in earnings, negative past stock returns, and excessively optimistic analyst earnings forecasts, and when the earnings yield is high relative to bond yields so that from an accounting perspective equity is ‘expensive’. Managers of high debt issuing firms are more likely to be newly appointed and also more likely to be replaced in subsequent years. Abnormal returns on portfolios formed on the basis of asset growth and debt issuance are strongly positively associated with the contemporaneous changes in returns on assets and on equity as well as with earnings surprises. This may account for the finding that debt issuance forecasts negative abnormal returns, since debt issuance also forecasts negative changes in returns on assets and on equity and negative earnings surprises. Different mechanisms appear to be at work for firms that retire debt.
T3  - SAFE working paper - 26 
KW  - capital structure
KW  - financing policy
KW  - managerial incentives
Y1  - 2013
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/31412
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-314123
UR  - http://ssrn.com/abstract=2308909
IS  - version 11 august 2013
EP  - 44
CY  - Frankfurt am Main
ER  -