The Salience of Creditors' Interests and CEO Compensation

79 Pages Posted: 15 May 2017 Last revised: 26 Sep 2018

See all articles by Brian Akins

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: September 19, 2018

Abstract

This paper shows that firms adjust CEO compensation policies when creditors' interests are more 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 by using both a regression discontinuity design around loan covenant violations and studying a broad sample of financially constrained firms seeking debt financing.

Keywords: CEO Compensation, Creditors' Interests, Debt Contracting

JEL Classification: G32, G34, J33

Suggested Citation

Akins, Brian K. and Bitting, Jonathan and De Angelis, David and Gaulin, Maclean, The Salience of Creditors' Interests and CEO Compensation (September 19, 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

Register to save articles to
your library

Register

Paper statistics

Downloads
270
rank
105,817
Abstract Views
930
PlumX