| Popis: |
Managements’ main aims are to preserve their jobs and be highly paid; the balance between these determines their decisions about the level of their companies’ capital investment, debt, and pay-out ratios. Job preservation requires that leverage is neither too high nor insufficient; the former increases the risk that new equity finance will be needed by new issues, which are disliked by shareholders, the latter results in the loss of market share as competitors improve their relative competitiveness. Results include (i) that the corporate interest payments/pre-tax ratio is stationary, (ii) that the hurdle rate for investment is stationary at around 6.7 per cent, and (iii) that pay-out ratios reflect the growth of the economy, given stable leverage. The change in management pay (‘the bonus culture’) has had the medium-term consequence of raising the hurdle rate in the United Kingdom and the United States and depressing investment. |
