Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/203296
Authors: 
Brennan, Michael J.
Kraft, Holger
Year of Publication: 
2016
Series/Report no.: 
SAFE Working Paper 119
Abstract: 
We offer evidence of a new stylized feature of corporate financing decisions: the tendency of managers to rely more on debt financing when earnings prospects are poor. We term this 'leaning against the wind' and consider three possible explanations: market timing, precautionary financing, and 'making the numbers'. We find no evidence in favor of the first two hypotheses, and provisionally accept the 'making the numbers' hypothesis that managers who are under pressure because of unrealistically optimistic earnings expectations by analysts and deteriorating real opportunities, will rely more heavily on debt financing to boost earnings per share and return on equity.
Subjects: 
Capital structure
financing policy
managerial incentives
JEL: 
G12
G14
G32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper
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