Executive Compensation and the Cost of Debt

Posted: 10 Jul 2013

See all articles by Rezaul Kabir

Rezaul Kabir

University of Twente - Department of Finance and Accounting

Hao Li

Independent

Yulia V. Veld-Merkoulova

Monash University - Department of Finance; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2013

Abstract

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

Kabir, Rezaul and Li, Hao and Veld-Merkoulova, Yulia V., Executive Compensation and the Cost of Debt (August 1, 2013). Journal of Banking and Finance, Vol. 37, No. 8, 2013. Available at SSRN: https://ssrn.com/abstract=2291181

Rezaul Kabir (Contact Author)

University of Twente - Department of Finance and Accounting ( email )

Faculty of Behavioral, Management & Social Science
P. O. Box 217
Enschede, 7500 AE
Netherlands
+31 53 489 4512 (Phone)
+31 53 489 2159 (Fax)

HOME PAGE: http://https://people.utwente.nl/r.kabir

Hao Li

Independent ( email )

No Address Available

Yulia V. Veld-Merkoulova

Monash University - Department of Finance ( email )

Building H
Caulfield, Victoria 3145
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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