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Executive Compensation and Corporate Financing Policies: Evidence from CEO inside Debt

64 Pages Posted: 9 Oct 2017  

Steven Freund

University of Massachusetts Lowell - Department of Finance

Saira Latif

University of Massachusetts Lowell - The Robert J. Manning School of Business

Hieu V. Phan

University of Massachusetts Lowell

Date Written: October 1, 2017

Abstract

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

Freund, Steven and Latif, Saira and Phan, Hieu V., Executive Compensation and Corporate Financing Policies: Evidence from CEO inside Debt (October 1, 2017). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3048523

Steven Freund

University of Massachusetts Lowell - Department of Finance ( email )

Lowell, MA 01854
United States

Saira Latif

University of Massachusetts Lowell - The Robert J. Manning School of Business ( email )

One University Avenue
Lowell, MA 01854
United States

Hieu Phan (Contact Author)

University of Massachusetts Lowell ( email )

One University Avenue
Lowell, MA 01854
United States

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