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CEO Inside Debt and Accounting Conservatism

44 Pages Posted: 6 Nov 2010  

Cong Wang

China Europe International Business School (CEIBS)

Fei Xie

University of Delaware

Xiangang Xin

City University of Hong Kong

Date Written: August 25, 2017

Abstract

We examine the relation between accounting conservatism and inside debt held by managers in the form of pension benefits and deferred compensation. We find that financial reporting is less conservative in firms whose CEOs hold more inside debt, particularly in firms with high default risk and agency costs of debt. This is consistent with our hypothesis that by aligning managerial incentives more closely with those of debtholders, inside debt reduces debtholders’ expropriation concerns and thus their demand for accounting conservatism. Our results are robust to identification strategies addressing the endogeneity of CEO inside debt and to alternative measures of accounting conservatism.

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

JEL Classification: G32, M41

Suggested Citation

Wang, Cong and Xie, Fei and Xin, Xiangang, CEO Inside Debt and Accounting Conservatism (August 25, 2017). Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1703478 or http://dx.doi.org/10.2139/ssrn.1703478

Cong Wang

China Europe International Business School (CEIBS) ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

Fei Xie (Contact Author)

University of Delaware ( email )

Newark, DE 19711
United States

Xiangang Xin

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
Hong Kong

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