Work

Executive Compensation and the Maturity Structure of Corporate Debt

Year: 2009

Type: article

Abstract: Executive compensation influences managerial risk preferences through executives’ portfolio sensitivities to changes in stock prices (delta) and stock return volatility (vega). Large deltas discourage managerial risk-taking, while large vegas encourage risk-taking. Theory suggests that short-maturity debt mitigates agency costs of debt by constraining managerial risk preferences. We posit and find evidence of a negative (positive) relation between CEO portfolio deltas (vegas) and short-maturity debt. We also find that shortmaturity debt mitigates the influence of vega- and delta-related incentives on bond yields. Overall, our empirical evidence shows that short-term debt mitigates agency costs of debt arising from compensation risk.

Source: Lincoln (University of Nebraska)

Authors: Paul Brockman, Xiumin Martin, Emre Unlu

Institutions: Lehigh University, Washington University in St. Louis, University of Nebraska–Lincoln

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3125893273

FWCI: 16.64

Cites: 40

Cited by: 31

Related to: 10