Executive Compensation and the Maturity Structure of Corporate Debt
Executive compensation influences managerial risk preferences through executives' portfolio sensitivities to changes in stock prices (delta) and stock return volatility (vega). Large deltas discourage managerial risk-taking, while large vegas encourage risk-taking. Theory suggests that short-ma...
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Veröffentlicht in: | The Journal of finance (New York) 2010-06, Vol.65 (3), p.1123-1161 |
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container_title | The Journal of finance (New York) |
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creator | BROCKMAN, PAUL MARTIN, XIUMIN UNLU, EMRE |
description | Executive compensation influences managerial risk preferences through executives' portfolio sensitivities to changes in stock prices (delta) and stock return volatility (vega). Large deltas discourage managerial risk-taking, while large vegas encourage risk-taking. Theory suggests that short-maturity debt mitigates agency costs of debt by constraining managerial risk preferences. We posit and find evidence of a negative (positive) relation between CEO portfolio deltas (vegas) and short-maturity debt. We also find that short-maturity debt mitigates the influence of vega- and delta-related incentives on bond yields. Overall, our empirical evidence shows that short-term debt mitigates agency costs of debt arising from compensation risk. |
doi_str_mv | 10.1111/j.1540-6261.2010.01563.x |
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Large deltas discourage managerial risk-taking, while large vegas encourage risk-taking. Theory suggests that short-maturity debt mitigates agency costs of debt by constraining managerial risk preferences. We posit and find evidence of a negative (positive) relation between CEO portfolio deltas (vegas) and short-maturity debt. We also find that short-maturity debt mitigates the influence of vega- and delta-related incentives on bond yields. 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Large deltas discourage managerial risk-taking, while large vegas encourage risk-taking. Theory suggests that short-maturity debt mitigates agency costs of debt by constraining managerial risk preferences. We posit and find evidence of a negative (positive) relation between CEO portfolio deltas (vegas) and short-maturity debt. We also find that short-maturity debt mitigates the influence of vega- and delta-related incentives on bond yields. Overall, our empirical evidence shows that short-term debt mitigates agency costs of debt arising from compensation risk.</description><subject>Business management</subject><subject>Chief executive officers</subject><subject>Corporate debt</subject><subject>Corporate finance</subject><subject>Debt</subject><subject>Executive compensation</subject><subject>Financial instruments</subject><subject>Financial leverage</subject><subject>Financial management</subject><subject>Options on stocks</subject><subject>Preferences</subject><subject>Rates of return</subject><subject>Risk assessment</subject><subject>Risk management</subject><subject>Senior management</subject><subject>Short term debt</subject><subject>Stock options</subject><subject>Stock prices</subject><subject>Studies</subject><issn>0022-1082</issn><issn>1540-6261</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2010</creationdate><recordtype>article</recordtype><recordid>eNqNkc1O3DAUha2qSJ1CH6FSxIZVpv53skFCU6CgoSxK2-WV4zgiYSae2g7MvD0OQbNgU6wr-crnu0e2D0IZwXOS1rduTgTHuaSSzClOp5gIyebbD2i2Fz6iGcaU5gQX9BP6HEKHxyXEDC3Ot9YMsX202cKtN7YPOrauz3RfZ_HeZjc6Dr6Nu-xX9INJvc1ck1C_cV5Hm323VTxCB41eBfvldT9Evy_O7xY_8uXt5dXibJkbSTDLreGVVqWs042UqhgzUnBa86JpKqzKWlCSipsKl1VNG1ExzkqqDGEF5qap2SE6mXw33v0bbIiwboOxq5XurRsCKMEKRlmq_5JcsvRPXLyTxLJI5PEbsnOD79ODgZRcUS5UmaBigox3IXjbwMa3a-13QDCMeUEHYywwxgJjXvCSF2zT6Ok0-tSu7O7dc3B9e3E1tsng62TQhej83oAKmVQ66vmktyHa7V7X_gGkYkrA35-XwP_Iu4IVS6DsGXP1sag</recordid><startdate>201006</startdate><enddate>201006</enddate><creator>BROCKMAN, PAUL</creator><creator>MARTIN, XIUMIN</creator><creator>UNLU, EMRE</creator><general>Blackwell Publishing Inc</general><general>Blackwell Publishing</general><general>Blackwell Publishers Inc</general><scope>BSCLL</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope><scope>7U1</scope><scope>7U2</scope><scope>C1K</scope></search><sort><creationdate>201006</creationdate><title>Executive Compensation and the Maturity Structure of Corporate Debt</title><author>BROCKMAN, PAUL ; MARTIN, XIUMIN ; UNLU, EMRE</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c6103-ec4ba796d26177b33c6542d48ffb079d5215214cb09bd2f5b343927c13804cfd3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2010</creationdate><topic>Business management</topic><topic>Chief executive officers</topic><topic>Corporate debt</topic><topic>Corporate finance</topic><topic>Debt</topic><topic>Executive compensation</topic><topic>Financial instruments</topic><topic>Financial leverage</topic><topic>Financial management</topic><topic>Options on stocks</topic><topic>Preferences</topic><topic>Rates of return</topic><topic>Risk assessment</topic><topic>Risk management</topic><topic>Senior management</topic><topic>Short term debt</topic><topic>Stock options</topic><topic>Stock prices</topic><topic>Studies</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>BROCKMAN, PAUL</creatorcontrib><creatorcontrib>MARTIN, XIUMIN</creatorcontrib><creatorcontrib>UNLU, EMRE</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><collection>Risk Abstracts</collection><collection>Safety Science and Risk</collection><collection>Environmental Sciences and Pollution Management</collection><jtitle>The Journal of finance (New York)</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>BROCKMAN, PAUL</au><au>MARTIN, XIUMIN</au><au>UNLU, EMRE</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Executive Compensation and the Maturity Structure of Corporate Debt</atitle><jtitle>The Journal of finance (New York)</jtitle><date>2010-06</date><risdate>2010</risdate><volume>65</volume><issue>3</issue><spage>1123</spage><epage>1161</epage><pages>1123-1161</pages><issn>0022-1082</issn><eissn>1540-6261</eissn><coden>JLFIAN</coden><abstract>Executive compensation influences managerial risk preferences through executives' portfolio sensitivities to changes in stock prices (delta) and stock return volatility (vega). 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source | Access via Wiley Online Library; JSTOR Archive Collection A-Z Listing |
subjects | Business management Chief executive officers Corporate debt Corporate finance Debt Executive compensation Financial instruments Financial leverage Financial management Options on stocks Preferences Rates of return Risk assessment Risk management Senior management Short term debt Stock options Stock prices Studies |
title | Executive Compensation and the Maturity Structure of Corporate Debt |
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