CEO inside debt holdings and credit ratings

Mostafa Monzur Hasan, Ashrafee Hossain and Takdir Hossain

Journal of Contemporary Accounting and Economics, 2023, vol. 19, issue 1

Abstract: In this paper we investigate the relationship between chief executive officer (CEO) inside debt holdings (pension benefits and deferred compensation) and long-term credit ratings. We provide evidence that firms with a higher level of inside debt holdings enjoy better credit ratings. Our results are robust to the use of alternative regression estimation and alternative measures of key variables. We employ instrumental variable–based two-stage least squares regression and instrumental variable regression estimation using heteroskedasticity-based instruments to mitigate the endogeneity concern. In addition, we employ propensity-matched sample and entropy balancing estimates to alleviate endogeneity concerns. Our cross-sectional analyses reveal that the relationship between CEO inside debt holdings and credit ratings is more pronounced in firms with a poor information environment, a weak monitoring mechanism, and powerful CEOs. Overall, findings from our study suggest that credit rating agencies evaluate CEO insider debt holdings positively in assessing the creditworthiness of a firm.

Keywords: CEO inside debt; Executive compensation; Credit ratings (search for similar items in EconPapers)
JEL-codes: G24 G34 M12 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:19:y:2023:i:1:s1815566922000327

DOI: 10.1016/j.jcae.2022.100337

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