Executive compensation and the cost of debt

Rezaul Kabir; Hao Li; Joulia Wiktorowna Veld-Merkoulova

doi:10.1016/j.jbankfin.2013.04.020

Executive compensation and the cost of debt

Rezaul Kabir, Hao Li, Joulia Wiktorowna Veld-Merkoulova

Research output: Contribution to journal › Article › Research › peer-review

59 Citations (Scopus)

Abstract

This study examines how different components of executive compensation affect the cost of debt. We find that debt-like and equity-like pay components have differing effects: an increase in defined benefit pensions is associated with lower bond yield spread, while higher share holdings lead to higher spreads. In addition, we find that stock options have a mixed impact on the cost of debt whereas cash bonus has no significant impact. Overall, our results indicate that corporate bondholders are fully aware of both risk-taking and risk-avoiding incentives created by various executive pay components.

Original language	English
Pages (from-to)	2893 - 2907
Number of pages	15
Journal	Journal of Banking and Finance
Volume	37
Issue number	8
DOIs	https://doi.org/10.1016/j.jbankfin.2013.04.020
Publication status	Published - 2013
Externally published	Yes

Access to Document

10.1016/j.jbankfin.2013.04.020

Cite this

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title = "Executive compensation and the cost of debt",

abstract = "This study examines how different components of executive compensation affect the cost of debt. We find that debt-like and equity-like pay components have differing effects: an increase in defined benefit pensions is associated with lower bond yield spread, while higher share holdings lead to higher spreads. In addition, we find that stock options have a mixed impact on the cost of debt whereas cash bonus has no significant impact. Overall, our results indicate that corporate bondholders are fully aware of both risk-taking and risk-avoiding incentives created by various executive pay components.",

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