Risk averse insiders with specific objective function and capital structure choice in European emerging economies

Abstract

I provide new insights in capital structure choice in European emerging economies by extending the logic beyond the scope of modern capital structure theory, which is based on the assumption that firms are governed by shareholders and follow the goal of maximizing their wealth. I empirically investigate capital structure choice in these countries assuming an alternative corporate governance paradigm that puts risk averse insiders with specific objective function in the firm's governance structures. I found that firms that are owned by insiders operate with significantly lower leverage, as well as that the probability that a firm uses debt at all drops if insiders are the largest shareholders.