Inside Debt and Mergers and Acquisitions
73 Pages Posted: 16 Mar 2013 Last revised: 17 Aug 2018
Date Written: April 7, 2013
Abstract
I empirically investigate the relation between CEO inside debt holdings and mergers and acquisitions (M&As) and find evidence consistent with the agency theory’s prediction of a negative relation between CEO inside debt holdings and corporate risk taking. Further analysis shows that CEO inside debt holdings are positively correlated with M&A announcement abnormal bond returns and long-term operating performance, but negatively correlated with M&A announcement abnormal stock returns. Finally, I find evidence that acquirers restructure the post-merger composition of CEO compensation that mirrors their capital structure in order to alleviate incentives for wealth transfer from shareholders to bondholders or vice versa.
Keywords: inside debt, CEO inside leverage, CEO incentive, executive compensation, Merger and Acquisition, pension
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