Title
The Effects of Relative Changes in CEO Equity Incentives on the Cost of Corporate Debt
Publication Date
4-2013
Source Full Text URL
https://doi.org/10.1111/jbfa.12023
Document Type
Article
Abstract
We examine how effort and risk incentives embedded in CEO equity incentives are related to the cost of debt and the role credit worthiness plays in this relationship. Our empirical approach addresses a number of unanswered questions in the literature by examining the sources and effects of co‐movements in CEO incentives, whether the proportionality of these movements is rationally priced, and whether the effects are concentrated among bonds with greater likelihood of default. Our findings confirm that effort and risk incentives are rationally priced by bond market participants. We also show that significant cross‐sectional effects are more pronounced for speculative bonds, implying that previously documented links between equity incentives and the cost of debt may not be generalizable to all debt issues.
Comments
Prevost, A. K., Devos, E. and Rao, R. P. (2013), The Effects of Relative Changes in CEO Equity Incentives on the Cost of Corporate Debt. Journal of Business Finance & Accounting, 40: 470-500. doi:10.1111/jbfa.12023