Handbook of Empirical Corporate Finance SET

Chapter 13

Capital Structure and Corporate Strategy

Chris Parsons    McGill University

Sheridan Titman    University of Texas

Abstract

In this chapter we review and discuss empirical studies that examine how a firm’s financing choice affects its strategic decisions and relationships with its nonfinancial stakeholders, such as its customers or workforce. Generally, high leverage appears to inhibit a firm’s ability or willingness to compete aggressively, especially against well-financed competitors. Debt also disciplines the manager–worker relationship, preventing managers from hoarding labor during economic downturns. Many of the studies also indicate that the firm’s relationships with its customers can be disrupted by concerns over the firm’s long ...