Abstract

http://ssrn.com/abstract=1703478
 
 

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Managerial Ownership of Debt and Corporate Financial Reporting


Cong Wang


The Chinese University of Hong Kong (CUHK) - Department of Finance

Fei Xie


Clemson University

Xiangang Xin


City University of Hong Kong

June 26, 2013


Abstract:     
We examine whether inside debt held by managers in the form of pension benefits and deferred compensation affects corporate financial reporting practice. We find significant evidence of less conservative financial reporting at firms where CEOs hold more inside debt. This is consistent with the hypothesis that inside debt dampens managerial risk taking incentive and alleviates debtholders’ concern for asset substitution and expropriation, thereby reducing firms’ need for accounting conservatism to address agency costs of debt. We also find that the negative effect of inside debt on accounting conservatism exhibits several cross-sectional variations as theory predicts and that it is robust to correcting for the endogeneity of inside debt.

Number of Pages in PDF File: 41

Keywords: Managerial Ownership of Debt, Inside Debt, Deferred Compensation, Executive Pension, Accounting Conservatism, Agency Costs of Debt

JEL Classification: G32, M41

working papers series


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Date posted: November 6, 2010 ; Last revised: June 27, 2013

Suggested Citation

Wang, Cong and Xie, Fei and Xin, Xiangang, Managerial Ownership of Debt and Corporate Financial Reporting (June 26, 2013). Available at SSRN: http://ssrn.com/abstract=1703478 or http://dx.doi.org/10.2139/ssrn.1703478

Contact Information

Cong Wang
The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )
Shatin, N.T.
Hong Kong
(852)26961913 (Phone)
(852)26036586 (Fax)
Fei Xie (Contact Author)
Clemson University ( email )
101 Sikes Ave
Clemson, SC 29634
United States
(864) 656-0774 (Phone)
Xiangang Xin
City University of Hong Kong ( email )
83 Tat Chee Avenue
Kowloon
Hong Kong
Hong Kong
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