Executive inside debt compensation

Shawn X. Huang and Juan Manuel Sanchez

Chapter 6 in Research Handbook on Alternative Finance, 2024, pp 116-130 from Edward Elgar Publishing

Abstract: Executive compensation plays an important role in aligning the interests between managers and capital providers. Prior research adopts a shareholder-centric view of the firm and primarily focuses on equity-based compensation such as stock options or stock, where the main objective is to maximize share price and benefit shareholders. However, debtholders are vital to firm success as well. To achieve interest alignment between managers and debtholders, theorists propose granting executives debt-like compensation, inside debt, such that they face asymmetric payoffs with respect to firm performance similar to that faced by debtholders. We review the theoretical arguments and models regarding the implications of inside debt for managerial risk-taking incentives. We also review the empirical evidence on the effect of inside debt on firms’ specific policies and investors’ perception of inside debt. Finally, we discuss other forms of inside debt that may serve as an alternative financing source for firms.

Keywords: Asian Studies; Business and Management; Economics and Finance; Innovations and Technology (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.elgaronline.com/doi/10.4337/9781800370494.00013 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 503 Service Temporarily Unavailable

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:elg:eechap:19941_6

Ordering information: This item can be ordered from
http://www.e-elgar.com

Access Statistics for this chapter

More chapters in Chapters from Edward Elgar Publishing
Bibliographic data for series maintained by Darrel McCalla ().