The Salience of Creditors' Interests and CEO Compensation

79 Pages Posted: 15 May 2017 Last revised: 12 Jul 2018

Brian Akins

Rice University - Jesse H. Jones Graduate School of Business

Jonathan Bitting

Rice University, Jesse H. Jones Graduate School of Business, Students

David De Angelis

Rice University - Jesse H. Jones Graduate School of Business

Maclean Gaulin

University of Utah - David Eccles School of Business

Date Written: June 27, 2018

Abstract

This paper shows that firms adjust CEO compensation policies when creditors' interests are salient. This effect helps explain controversial compensation practices such as weak performance incentives and short pay duration. Our findings also show that to mitigate the agency cost of debt, compensation contracts can reflect not only the firm's capital structure but the debt contract itself. For example, firms tend to contract on accounting-based goals when creditors do as well. We reach these conclusions both by studying a broad sample of firms seeking debt financing and by using a regression discontinuity design around loan covenant violations.

Keywords: CEO Compensation, Creditors' Interests, Debt Contracting

JEL Classification: G32, G34, J33

Suggested Citation

Akins, Brian and Bitting, Jonathan and De Angelis, David and Gaulin, Maclean, The Salience of Creditors' Interests and CEO Compensation (June 27, 2018). Available at SSRN: https://ssrn.com/abstract=2967326 or http://dx.doi.org/10.2139/ssrn.2967326

Brian K. Akins

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Jonathan Bitting (Contact Author)

Rice University, Jesse H. Jones Graduate School of Business, Students ( email )

Houston, TX
United States

David De Angelis

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

HOME PAGE: http://www.de-angelis.com

Maclean Gaulin

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States
801.585.0324 (Phone)

HOME PAGE: http://mgaulin.com

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