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Does Debt Concentration Depend on the Risk-Taking Incentives in CEO Compensation?

Castro, P.; Keasey, K.; Amor-Tapia, B.; Tascon, M.T.; Vallascas, F.

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Authors

P. Castro

K. Keasey

B. Amor-Tapia

M.T. Tascon



Abstract

Using a sample of US non-financial firms we show that an increase in risk-taking incentives in CEO pay is associated with a greater debt concentration by debt type. This result holds in various empirical settings that account for endogeneity and is in line with the view that a more concentrated debt structure in fewer debt types reduces coordination problems among creditors and the related financial distress costs. Along these lines, we find our results are stronger in riskier firms, in firms with more volatile cash-flows or less stakeholder-orientation and when CEO pay incentives are embedded in vested options that are expected to favor business choices with more immediate negative effects on debtholders' wealth. Overall, our findings are consistent with theoretical models in which the debt structure of a firm acts as a commitment device.

Citation

Castro, P., Keasey, K., Amor-Tapia, B., Tascon, M., & Vallascas, F. (2020). Does Debt Concentration Depend on the Risk-Taking Incentives in CEO Compensation?. Journal of Corporate Finance, 64, Article 101684. https://doi.org/10.1016/j.jcorpfin.2020.101684

Journal Article Type Article
Acceptance Date Jun 23, 2020
Online Publication Date Jun 27, 2020
Publication Date 2020-10
Deposit Date Jun 24, 2020
Publicly Available Date Dec 27, 2021
Journal Journal of Corporate Finance
Print ISSN 0929-1199
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 64
Article Number 101684
DOI https://doi.org/10.1016/j.jcorpfin.2020.101684
Public URL https://durham-repository.worktribe.com/output/1267777

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