Hypotheses - Effects of capital structure on performance and other incentive mechanisms in corporate governance

Table: Hypotheses - Effects of capital structure on performance and other incentive mechanisms in corporate governance

Click here to see an exhibition on these issues and their relation to other hypotheses in corporate governance.

2) From capital structure to corporate performance

2A: Free cash flow argument: Jensen’s [1986] free cash flow argument predicts that more leverage may increase financial performance because the managers of indebted firms are less able to invest in projects with negative net present value.