The Effects of Relative Changes in CEO Equity Incentives on the Cost of Corporate Debt
We examine how effort and risk incentives embedded in CEO equity incentives are related to the cost of debt and the role credit worthiness plays in this relationship. Our empirical approach addresses a number of unanswered questions in the literature by examining the sources and effects of co‐moveme...
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| Veröffentlicht in: | Journal of business finance & accounting 2013-04, Vol.40 (3-4), p.470-500 |
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| Hauptverfasser: | , , |
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| container_end_page | 500 |
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| container_issue | 3-4 |
| container_start_page | 470 |
| container_title | Journal of business finance & accounting |
| container_volume | 40 |
| creator | Prevost, Andrew K. Devos, Erik Rao, Ramesh P. |
| description | We examine how effort and risk incentives embedded in CEO equity incentives are related to the cost of debt and the role credit worthiness plays in this relationship. Our empirical approach addresses a number of unanswered questions in the literature by examining the sources and effects of co‐movements in CEO incentives, whether the proportionality of these movements is rationally priced, and whether the effects are concentrated among bonds with greater likelihood of default. Our findings confirm that effort and risk incentives are rationally priced by bond market participants. We also show that significant cross‐sectional effects are more pronounced for speculative bonds, implying that previously documented links between equity incentives and the cost of debt may not be generalizable to all debt issues. |
| doi_str_mv | 10.1111/jbfa.12023 |
| format | Article |
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Our empirical approach addresses a number of unanswered questions in the literature by examining the sources and effects of co‐movements in CEO incentives, whether the proportionality of these movements is rationally priced, and whether the effects are concentrated among bonds with greater likelihood of default. Our findings confirm that effort and risk incentives are rationally priced by bond market participants. We also show that significant cross‐sectional effects are more pronounced for speculative bonds, implying that previously documented links between equity incentives and the cost of debt may not be generalizable to all debt issues.</description><subject>Bond market</subject><subject>Bond markets</subject><subject>Chief executive officers</subject><subject>Corporate debt</subject><subject>cost of debt</subject><subject>Costs</subject><subject>Credit scoring</subject><subject>Equity</subject><subject>Executive compensation</subject><subject>Incentives</subject><subject>Risk</subject><subject>Studies</subject><issn>0306-686X</issn><issn>1468-5957</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2013</creationdate><recordtype>article</recordtype><recordid>eNp9kMtOwzAQRS0EEqWw4QsssUFIKeM4sZMlhLaAUJEQr53lpmNICUlru0D_HpcCCxZ4M5bmnNHVJWSfQY-FdzwdG91jMcR8g3RYIrIozVO5STrAQUQiE4_bZMe5KQDETMgOub99Rto3BkvvaGvoDdbaV29Ii2fdPKGjVUOL_jXtzxeVX9KLpsRmtQ9wQ31wi9b5lVi0dtZa7ZGe4djvki2ja4d737NL7gb92-I8uroeXhQnV1GZyJhHXOcSxwzBJFKI2JQxT4WBdMJKlmOWcTCSacnTMQ9fSDPMBSulETCReQaGd8nh-u7MtvMFOq9eK1diXesG24VTjKeQZTkwEdCDP-i0XdgmpAtUIiQDSPJAHa2p0rbOWTRqZqtXbZeKgVpVrFYVq6-KA8zW8HtV4_IfUl2eDk5-nGjtVM7jx6-j7YsSkstUPYyGioXMIx4_hmSfT1uJug</recordid><startdate>201304</startdate><enddate>201304</enddate><creator>Prevost, Andrew K.</creator><creator>Devos, Erik</creator><creator>Rao, Ramesh P.</creator><general>Blackwell Publishing Ltd</general><scope>BSCLL</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope></search><sort><creationdate>201304</creationdate><title>The Effects of Relative Changes in CEO Equity Incentives on the Cost of Corporate Debt</title><author>Prevost, Andrew K. ; Devos, Erik ; Rao, Ramesh P.</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c4723-3a97eb1e0f47662fc2356f05d1c19e8830f71a735b330f058e961c7f60d7980f3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2013</creationdate><topic>Bond market</topic><topic>Bond markets</topic><topic>Chief executive officers</topic><topic>Corporate debt</topic><topic>cost of debt</topic><topic>Costs</topic><topic>Credit scoring</topic><topic>Equity</topic><topic>Executive compensation</topic><topic>Incentives</topic><topic>Risk</topic><topic>Studies</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Prevost, Andrew K.</creatorcontrib><creatorcontrib>Devos, Erik</creatorcontrib><creatorcontrib>Rao, Ramesh P.</creatorcontrib><collection>Istex</collection><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>Journal of business finance & accounting</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Prevost, Andrew K.</au><au>Devos, Erik</au><au>Rao, Ramesh P.</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>The Effects of Relative Changes in CEO Equity Incentives on the Cost of Corporate Debt</atitle><jtitle>Journal of business finance & accounting</jtitle><addtitle>Journal of Business Finance & Accounting</addtitle><date>2013-04</date><risdate>2013</risdate><volume>40</volume><issue>3-4</issue><spage>470</spage><epage>500</epage><pages>470-500</pages><issn>0306-686X</issn><eissn>1468-5957</eissn><abstract>We examine how effort and risk incentives embedded in CEO equity incentives are related to the cost of debt and the role credit worthiness plays in this relationship. 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| identifier | ISSN: 0306-686X |
| ispartof | Journal of business finance & accounting, 2013-04, Vol.40 (3-4), p.470-500 |
| issn | 0306-686X 1468-5957 |
| language | eng |
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| source | Business Source Complete (EB_SDU_P3); Wiley Online Library Journals Frontfile Complete |
| subjects | Bond market Bond markets Chief executive officers Corporate debt cost of debt Costs Credit scoring Equity Executive compensation Incentives Risk Studies |
| title | The Effects of Relative Changes in CEO Equity Incentives on the Cost of Corporate Debt |
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