Determinants of the Floating-to-Fixed Rate Debt Structure of Firms
47 Pages Posted: 28 Feb 2005
Date Written: February 28, 2006
We analyze the effects of managerial incentive, monitoring, firm characteristics and market-timing on floating-to-fixed rate debt structure of firms. We find that the CFO's (not CEO's) incentive has a strong influence on a firm's debt structure. When CFOs have incentives to increase (decrease) firm-risk, firms obtain volatility-increasing (decreasing) debt structure. Internal monitoring by the CEO and independent board members as well as external monitoring through corporate control market weakens the link between CFO's incentive and debt structure. Our findings suggest that agency problems at the level of non-CEO executives may be an important driver of various corporate decisions.
Keywords: Hedging, floating rate debt, corporate governance, executive compensation
JEL Classification: G3
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