Managerial compensation incentives and corporate debt maturity: Evidence from FAS 123R

Jieying Hong

Journal of Corporate Finance, 2019, vol. 56, issue C, 388-414

Abstract: This paper studies the effect of risk-taking incentives provided by option compensation on corporate debt maturity choices. The Financial Accounting Standard (FAS) 123R is used as a quasi-natural experiment to establish causality. FAS 123R requires firms to expense stock options at fair value, which has resulted in a dramatic reduction in option compensation and managerial risk-taking incentives. We find that treated firms significantly increased debt maturity relative to control firms. Further tests identify that the alleviation of creditor-shareholder agency conflicts due to the adoption of FAS 123R is the underlying mechanism driving the result.

Keywords: Debt maturity; CEO compensation; FAS 123R; Credit-shareholder conflict (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:56:y:2019:i:c:p:388-414

DOI: 10.1016/j.jcorpfin.2019.03.006

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