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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
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:64:y:2020:i:c:s0929119920301280

DOI: 10.1016/j.jcorpfin.2020.101684

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