Inside Debt and the Design of Corporate Debt Contracts

Anantharaman, Divya; Fang, Vivian W.; Gong, Guojin

doi:10.2139/ssrn.1743634

Cited by 51 publications

(129 citation statements)

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“…Thus, the incentive effect of pensions may be stronger than that of deferred compensation. Consistent with this, Anantharaman et al (2014)…”

Section: Which Matters Pensions or Other Deferred Compensation?supporting

confidence: 77%

“…Sundaram and Yermack (2007) find a positive association between CEO's inside debt holding and the distance to default indicating that inside debt moderates the CEO's risk-shifting tendency. Other research finds that inside debt holding decreases (increases) the firm's cost of debt (equity) and decreases the firm's market risk levels (Wei and Yermack, 2011), lowers borrowing costs and reduces the use of debt covenants (Anantharaman, Fang, and Gong, 2014), reduces accounting conservatism (Wang, Xie, and Xin, 2014), and the riskiness of the firm's investment and financing policies (Cassell et al, 2012). In addition, inside debt holdings are positively associated with firm cash holdings (Liu, Mauer, and Zhang, 2014) and abnormal bond returns at merger and acquisition (M&A) announcements (Phan, 2014), and negatively associated with cash holding value (Liu et al, 2014) and abnormal stock returns at M&A announcements (Phan, 2014).…”

Section: Related Literaturementioning

confidence: 99%

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CEO's Inside Debt and Dynamics of Capital Structure

Brisker¹,

Wang

2017

Financial Management

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Debt‐type compensation (inside debt) exacerbates the divergence in risk preferences between the chief executive officer (CEO) and shareholders and, in turn, affects capital structure decisions. An excessively risk‐averse CEO tends to use less debt than the shareholders desire, reduce debt quickly when the firm is overlevered, but is reluctant to increase debt when the firm is underlevered. We find that higher CEO's inside debt ratio (i.e., inside debt as a percentage of total incentive compensation) is associated with lower firm leverage and faster (slower) leverage adjustments toward the shareholders’ desired level for overlevered (underlevered) firms. The CEO's inside debt ratio most conducive to capital structure rebalancing is around 10% of the firm's market debt ratio.

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“…Thus, the incentive effect of pensions may be stronger than that of deferred compensation. Consistent with this, Anantharaman et al (2014)…”

Section: Which Matters Pensions or Other Deferred Compensation?supporting

confidence: 77%

Section: Related Literaturementioning

confidence: 99%

CEO's Inside Debt and Dynamics of Capital Structure

Brisker¹,

Wang

2017

Financial Management

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“…Therefore, creditors will be less concerned with the wealth-transfer effect if borrowing firm CEOs have a large portion of debt-based compensation, and the costs of debt will be lower for such firms. Recent studies (e.g., Wei and Yermack, 2011;Anantharaman et al, 2013) have found empirical results to support this argument.…”

Section: B Firm Fixed Effects Covenants and Inside Debtmentioning

confidence: 95%

CEO Incentives, Relationship Lending, and the Cost of Corporate Borrowing

Chen¹,

Qiu

2016

Financial Management

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We investigate how lending relationships attenuate the conflict of interest between creditors and shareholders that arises from chief executive officer (CEO) compensation contracts. We find that lending relationships mitigate the influence of CEO risk‐taking incentives on loan spreads, especially for informationally opaque firms. In addition, lending relationships attenuate the impact of CEO risk‐taking incentives on maturity and collateral requirements. This article highlights the importance of bank monitoring through lending relationships to mitigate managerial risk‐shifting activities that arise from equity incentives.

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“…2 Economic theory suggests that inside debt can align the interests of managers with debtholders and reduce their incentives to expropriate debtholders through asset substitution (Jensen and Meckling 1976;Edmans and Liu 2011). Recent studies have linked it empirically to a number of corporate policies and outcomes (Sundaram and Yermack 2007;Cassell et al 2012;Wei and Yermack 2011;Anantharaman et al 2013;Phan 2014;Chi et al 2017). However, little is known about whether inside debt affects firms' accounting choices.…”

Section: Introductionmentioning

confidence: 99%

CEO Inside Debt and Accounting Conservatism

Xie

Xin

2018

Contemporary Accting Res

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We examine the relation between accounting conservatism and inside debt held by managers in the form of pension benefits and deferred compensation. We find that financial reporting is less conservative in firms whose CEOs hold more inside debt, particularly in firms with high default risk and agency costs of debt. This is consistent with our hypothesis that by aligning managerial incentives more closely with those of debtholders, inside debt reduces debtholders’ expropriation concerns and thus their demand for accounting conservatism. Our results are robust to identification strategies addressing the endogeneity of CEO inside debt and to alternative measures of accounting conservatism.

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Inside Debt and the Design of Corporate Debt Contracts

Cited by 51 publications

References 0 publications

CEO's Inside Debt and Dynamics of Capital Structure

CEO's Inside Debt and Dynamics of Capital Structure

CEO Incentives, Relationship Lending, and the Cost of Corporate Borrowing

CEO Inside Debt and Accounting Conservatism

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