Do CEO debt-like compensations promote investment efficiency?

Wajih Abbassi, Sabri Boubaker, Kaouther Chebbi and Riadh Manita

International Journal of Business Governance and Ethics, 2024, vol. 18, issue 4/5, 395-429

Abstract: This paper investigates how incentives from CEO debt-like compensations affect labour investment efficiency. Using a sample of 9,644 US firms-year observations from 2006 to 2018, we provide empirical evidence that labour investment inefficiencies, proxied by the absolute difference between the actual net hiring level and the optimal one predicted by economic fundamentals, decrease with CEO inside debt. These results are robust to using alternative proxies of CEO inside debt and the control for endogeneity. We further examine under-investment (under-hiring and over-firing) and over-investment (over-hiring and under-firing) problems and provide evidence that each form of distortion decreases as CEO inside debt increases. We also show that the positive impact of CEO inside debt on labour investment efficiency is more pronounced in firms facing lower financial constraints. Overall, our findings highlight the importance of CEO debt-like compensations in shaping firm-level employment decisions.

Keywords: inside debt; pension; deferred compensation; investment efficiency; labour investment. (search for similar items in EconPapers)
Date: 2024
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