A research on the impact of managerial entrenchment on capital structure

As the further study of agency theory, managerial entrenchment provides a new perspective to explain corporate financial decisions. Capital structure of listed companies in China has deviated from the goal of shareholders' wealth maximum. Based on this objective phenomenon, this thesis makes the theory analysis of the impact of managerial entrenchment on capital structure. Then using the financial data in Shanghai and Shenzhen Stock Market from the year 2001 to 2006, this paper empirically tests the influence of managerial entrenchment on capital structure. The results show that entrenched managers tend to avoid debt. The higher the extent of managerial entrenchment is, the lower the leverage is. This research provides the empirical evidences for perfecting managers' market, re-recognizing managers' incentives methods, improving internal and external environment that restrain managers.