How to incentivize CEOs to boost payouts? The role of inside debt

Artem Anilov and Irina Ivashkovskaya

Journal of Economics and Business, 2025, vol. 136, issue C, No S014861952500027X

Abstract: This paper examines the role of inside debt in shaping payout decisions in corporations. We show that higher CEO ownership of debt-like components of managerial compensation known as inside debt is associated with an increased likelihood and level of share repurchases, as well it motivates CEOs to choose share repurchases as a primary channel for payout policies. Furthermore, boards utilize different components of inside debt to provide different incentives in terms of payout decisions: deferred compensation incentivizes repurchases, while pension benefits encourage cash dividends. We argue that several special arrangements included in deferred compensation move this type of compensation closer to equity-based compensation, while most effects expected from inside debt seem to come from pension benefits.

Keywords: boards of directors; remuneration policy; inside debt; payout policy; share repurchases; agency costs (search for similar items in EconPapers)
JEL-codes: G30 G34 G35 M12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:136:y:2025:i:c:s014861952500027x

DOI: 10.1016/j.jeconbus.2025.106259

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