Debt, Performance-Based Incentives, and Firm Performance

Daniel L. McConaughy and Chandra S. Mishra

Financial Management, 1996, vol. 25, issue 2

Abstract: We identify conditions of prior performance and pay-performance sensitivity under which an increase in incentives is associated with improved performance. We find that increasing sensitivity increases risk-adjusted performance in firms with poor prior performance, but has little impact on high-performance firms. We also observe that firms choose higher pay-performance sensitivity when the probability of wealth transfers to bondholders is high(e.g., in low-growth, high-debt firms). Pay-performance sensitivity to stock prices is important. If carefully implemented under the appropriate conditions, it can provide effective incentives for improving firm performance.

Date: 1996
References: Add references at CitEc
Citations: View citations in EconPapers (7)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fma:fmanag:mcconaughy96

Access Statistics for this article

Financial Management is currently edited by Bill Christie

More articles in Financial Management from Financial Management Association University of South Florida 4202 E. Fowler Ave. COBA #3331 Tampa, FL 33620. Contact information at EDIRC.
Bibliographic data for series maintained by Courtney Connors ( this e-mail address is bad, please contact ).