A prominent financial journal has recognized a paper co-authored by Tarun Mukherjee, professor of economics and finance at the University of New Orleans, as one of two outstanding articles published in 2015. This special acknowledgement by the The Journal of Financial Research accompanied a $3,000 prize for the authors of the paper, entitled “Corporate Governance and Capital Structure: An Empirical Study.”
The paper’s authors provide the first empirical study of a theory put forth in previous literature regarding financial leverage in corporate management. “Financial leverage” refers to the conflict between maximizing profits of shareholders and maximizing a manager’s individual wealth. A manager is thought to be less likely to use debt or restructuring as financial management tools when it would reduce his discretion over cash flow or compromise the incentives in his benefits package. A previous publication predicts that managers would opt for lower than optimal leverage and be reluctant to rebalance the capital structure in a timely manner. This paper explores changes in corporate capital structures to determine whether firms are maximizing benefits for their shareholders or their own managers. The authors conclude that strong corporate governance—one with CEO–chairman separation, outside directors and institutional ownership—leads to higher speed of adjustment to the firm’s shareholders' desired leverage level. These findings are particularly significant as public discourse continues on issues involving wealth inequality and executive pay.
According to Mukherjee, Nobel Laureates Franco Modigliani and Merton Miller started a debate in 1958 arguing that the mixture of debt and equity a firm uses to finance its investments is irrelevant to its value.
“Many theories have evolved since that time to explain a firm’s behavior towards its capital structure, including the trade-off theory that suggest that an optimal mixture occurs where the benefit of debt is traded off against the cost of debt. We contribute to this body of work by providing indirect evidence that stockholders prefer the firm to adhere to an optimal capital structure,” said Mukherjee.
"This recognition is particularly special because the associate editors, who are among the best known world scholars in finance, select the two best papers,” he added.
Mukherjee's primary area of expertise is corporate finance, especially capital budgeting, dividend policy and mergers and acquisitions. His publications have appeared in, among other journals, Financial Management, Journal of Business Finance and Accounting, The Journal of Financial Research and Financial Review. Several of his articles have been published in books. His article entitled "A Survey of Corporate Leasing Analysis" is among the 25 most frequently referenced financial management articles in 16 leading corporate finance textbooks. Mukherjee holds the James R. Moffett Chair in Financial Economics at UNO and serves as co-editor of The Review of Financial Economics, a quality journal recognized worldwide.