Industry tournament incentives and debt contracting

Thomas R. Kubick (), G. Brandon Lockhart () and David C. Mauer ()
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Thomas R. Kubick: University of Nebraska-Lincoln
G. Brandon Lockhart: Clemson University
David C. Mauer: University of North Carolina at Charlotte

Review of Quantitative Finance and Accounting, 2024, vol. 63, issue 4, No 5, 1321 pages

Abstract: Abstract We test whether industry tournament incentives (ITI) for CEOs influence debt contracting. Measuring ITI as the pay gap between a CEO and the highest-paid industry peer, we find that firm credit ratings decrease and loan spreads and the tightness of non-price loan features increase with the industry pay gap. We find that a history of income increasing discretionary accruals and accounting restatements accentuate the influence of ITI on the cost of loans, while more restrictive loan contracts, greater alignment of managerial and creditor incentives, and higher default risk attenuate the influence of ITI on the cost of loans.

Keywords: Tournament incentives; Executive compensation; Bank loans; Debt contracting; Financial reporting (search for similar items in EconPapers)
JEL-codes: G32 G34 J33 M41 M52 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11156-024-01292-2

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