Economics at your fingertips  

Does debt concentration depend on the risk-taking incentives in CEO compensation?

Paula Castro, Kevin Keasey, Borja Amor-Tapia, Maria T. Tascon and Francesco Vallascas

Journal of Corporate Finance, 2020, vol. 64, issue C

Abstract: Using a sample of US non-financial firms we show that an increase in risk-taking incentives in CEO pay is associated with a greater debt concentration by debt type. This result holds in various empirical settings that account for endogeneity and is in line with the view that a more concentrated debt structure in fewer debt types reduces coordination problems among creditors and the related financial distress costs. Along these lines, we find our results are stronger in riskier firms, in firms with more volatile cash-flows or less stakeholder-orientation and when CEO pay incentives are embedded in vested options that are expected to favor business choices with more immediate negative effects on debtholders' wealth. Overall, our findings are consistent with theoretical models in which the debt structure of a firm acts as a commitment device.

Keywords: Debt concentration; Executive compensation; Corporate governance (search for similar items in EconPapers)
JEL-codes: G30 G32 J33 M12 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

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:

DOI: 10.1016/j.jcorpfin.2020.101684

Access Statistics for this article

Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter

More articles in Journal of Corporate Finance from Elsevier
Bibliographic data for series maintained by Nithya Sathishkumar ().

Page updated 2021-03-09
Handle: RePEc:eee:corfin:v:64:y:2020:i:c:s0929119920301280