Agency Cost of CEO Perquisite in the Bank Loan Contracts
53 Pages Posted: 25 Jan 2017
Date Written: August 20, 2016
This study investigates whether CEO perquisite of borrowing firms plays any significant role, both in terms of price and non-price settings, in financial contracts and reveals that lending banks demand significantly higher return (spread), more collateral, and stricter covenants from firms with higher CEO perks. These results hold after adjusting for CEO attributes, compensation schemes, and corporate governance of the borrowing firm. Therefore this study draws the conclusion that banks consider CEO perquisite as one type of agency cost when they make the lending decisions.
Keywords: CEO perquisite; agency cost; loan spread; compensation schemes; corporate governance
JEL Classification: G21, G32, G34
Suggested Citation: Suggested Citation