Secured debt and managerial incentives

Michael Alderson, Naresh Bansal and Brian Betker ()

Review of Quantitative Finance and Accounting, 2014, vol. 43, issue 3, 423-440

Abstract: Financial theory holds that firms can control agency costs through the use of short-term and secured debt. We examine the relation between the use of secured debt and the incentive of the manager to increase the risk of the firm, as measured by vega. We find that firms utilize secured debt to a lesser extent when managerial volatility sensitivity is higher. Our results suggest that these same firms employ short-term debt as the primary tool to control risk-shifting. Managers with a high risk appetite avoid secured debt, but appear to do so without compromising the interests of the shareholders. Copyright Springer Science+Business Media New York 2014

Keywords: Secured debt; Managerial incentives; Executive compensation; Financing policy; G30; G32 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s11156-013-0380-x

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