Capital structure and the control of managerial incentives

We present a theory of capital structure based on the power of shareholders, bondholders and managers to control the incentive conflicts in large corporations. The manager–owner conflict produces a trade-off between inefficiency in the low state and rents in the high state, and the shareholder–bondholder conflict produces under-investment as in Myers [Journal of Financial Economics 19 (1997) 147]. Since managers and bondholders both prefer more efficient actions in the low state, the two conflicts are interdependent. With risk-less levels of debt, there are no shareholder–bondholder agency costs, but managerial control over the incentive-setting process produces excessive rents. With risky debt, shareholders focus more on returns in the high state so that shareholder–bondholder agency costs increase but managerial rents decrease. Efficient levels of debt holder protection facilitate a reduction in manager–owner agency costs that outweighs shareholder–bondholder agency costs, and are decreasing in firm performance. The results are consistent with the separate empirical results relating control to both compensation and leverage, and suggest how future studies can be integrated.     

International lease-accounting reform and economic consequences: The views of U.K. users and preparers

In response to perceived difficulties with extant lease-accounting standards in operation worldwide, the G4+1 issued a discussion paper which proposes that all leases should be recognized on the balance sheet [ASB (1999). Leases: Implementation of a new approach, discussion paper. London: Accounting Standards Board]. Leasing is now on the active agenda of the IASB. A major difficulty faced by standard setters lies in overcoming the preparer/user lobbying imbalance and obtaining ex ante evidence on the likely impact of regulatory reform. This paper contributes to the ongoing international debate by conducting a questionnaire survey of U.K. users and preparers to assess their views on proposals for lease-accounting reform and on the potential economic consequences of their adoption. The results, based on 132 responses, indicate that both groups accept that there are deficiencies in the current rules, but they do not agree on the way forward and believe that the proposals would lead to significant economic consequences for key parties. The impact on respondents' views of familiarity with the proposals, level of lease usage, and company size, is also examined.     

The regional character of Asian multinational enterprises

In recent issues of this Journal a debate has raged concerning the appropriate nature of academic research in the Asia Pacific region. While we support the desire for both rigor and regional relevance in this research, we wish to demonstrate a strong commonality between the performance of large Asian firms and others from Europe and North America. This prompts us to question the need for a new theory of the MNE based on the experience of Asian firms. Like their counterparts elsewhere, the large Asian firms mostly operate on an intra-regional basis. While in the literature it has been assumed that the path to success for Asian firms is globalization, we show that the data supporting this is confined to a handful of unrepresentative case studies. We also present a bibliometric analysis which shows an overwhelming case study sample selection bias in academic studies towards this small number of unrepresentative cases.