Executive Compensation and the Cost of Debt
47 Pages Posted: 15 Jan 2010 Last revised: 8 Jul 2013
Date Written: February 1, 2013
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.
Keywords: Executive compensation, CEO pay, Cost of debt, Yield spread
JEL Classification: G31, G34
Suggested Citation: Suggested Citation