The Determinants of CEO Inside Debt and its Components
60 Pages Posted: 28 Nov 2010 Last revised: 18 Jan 2011
Date Written: November 10, 2010
I use the new SEC disclosure rule of 2006 to examine the role of CEO inside debt (pension plans and deferred compensation plans) in CEO compensation problem. I find that the contribution ratio of deferred compensation to total cash compensation is positively related to firm size, firm liquidity status, firm default risk, and executive personal wealth. In addition, I find a non-linear relation between firm leverage and CEO inside debt. The investigation shows that the underlying reasons for this non-linear relation may relate to firm financial distress and CEO risk aversion. This finding suggests that inside debt plays a more complex role in mitigating the asset substitution problem.
Keywords: Inside Debt, Managerial Compensation, Capital Structure, Corporate Governance
JEL Classification: D23, G32, G38, J33, J44, M14, M52
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