The Salience of Creditors' Interests and CEO Compensation

63 Pages Posted: 15 May 2017 Last revised: 4 Aug 2019

See all articles by Brian Akins

Brian Akins

Rice University - Jesse H. Jones Graduate School of Business

Jonathan Bitting

Appalachian State University - Walker College of Business

David De Angelis

University of Houston - C.T. Bauer College of Business

Maclean Gaulin

University of Utah - David Eccles School of Business

Date Written: August 1, 2019

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. Our analysis relies on a regression discontinuity design around loan covenant violations. We also confirm our conclusions 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 (August 1, 2019). 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)

Appalachian State University - Walker College of Business ( email )

Boone, NC 28608
United States

David De Angelis

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States

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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