Executive compensation and the cost of debt

Rezaul Kabir, Hao Li, Yulia V Veld-Merkoulova

    Research output: Contribution to journalArticlepeer-review

    36 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
    Number of pages15
    JournalJournal of Banking and Finance
    Volume37
    Issue number8
    DOIs
    Publication statusPublished - Aug 2013

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