Managerial risk-taking incentives and debt diversity: Evidence from FAS 123R

Daewoung Choi, Jinsook Lee and Ha-Chin Yi

Finance Research Letters, 2023, vol. 58, issue PB

Abstract: We investigate how managerial risk-taking incentives affect corporate borrowing diversity using the adoption of FAS 123R as a quasi-natural experiment. We find that a reduction of managerial risk-taking incentives induced by FAS 123R leads to greater borrowing diversity. We also observe reduced capitalized leases and convertible debt issuance following FAS 123R. Overall, our findings suggest that CEOs are less likely to promote a diversified debt structure in the presence of greater compensation risk-taking incentives (vega).

Keywords: Managerial risk-taking incentives; Borrowing diversity; Debt sources; FAS 123R (search for similar items in EconPapers)
JEL-codes: G30 G32 G38 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pb:s1544612323007602

DOI: 10.1016/j.frl.2023.104388

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