Executive Compensation and the Cost of Debt

Rezaul Kabir, Hao Liu, Yulia V. Veld-Merkoulova

Research output: Contribution to journalArticleAcademicpeer-review

21 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 languageEnglish
Pages (from-to)2893-2907
JournalJournal of banking & finance
Volume37
Issue number8
DOIs
Publication statusPublished - 1 Feb 2013

Keywords

  • METIS-295852
  • IR-86276

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