Executive Compensation and Corporate Financing Policies: Evidence from CEO inside Debt
64 Pages Posted: 9 Oct 2017
Date Written: October 1, 2017
We examine the relation between chief executive officer (CEO) inside debt holdings and the firm’s choice between debt and equity financing when it accesses external capital markets. We find positive relations between CEO inside debt holdings and both the firm’s likelihood to issue debt and the proportion of debt of their total external financing. Additional analysis indicates that CEO inside debt is negatively related to the cost of debt and positively related to the stock price reaction around the public debt issue announcement. Our results are consistent with the argument that inside debt aligns managers’ and debtholders’ interests leading to favorable debt terms that motivate firms to raise debt to meet their capital needs.
Keywords: Executive Compensation, Inside Debt, Financing Policies, Security Issuance
JEL Classification: G30, G32, G34
Suggested Citation: Suggested Citation