Executive Compensation and the Cost of Debt

Kabir, Rezaul and Li, Hao and Veld-Merkoulova, Yulia V. (2010) Executive Compensation and the Cost of Debt. In: Finance and Corporate Governance Conference 2010 , 7-9 April 2010, Melbourne, Australia.

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Abstract:	We examine how executive compensation affects the cost of debt financing. Analyzing CEO pay data from the UK, we find that debt-like and equity-like pay components have opposite effects on the cost of debt. An increase in defined benefit pensions is associated with lower bond yield spread, while an increase in executive stock options intensifies it. In addition, we find some evidence that cash bonus is negatively associated with the cost of borrowing. We do not observe any relation between restricted stock grants and the cost of debt financing. Our results suggest that bondholders are fully aware of both risk-taking and risk-avoiding incentives created by various executive pay components.
Item Type:	Conference or Workshop Item
Faculty:	Management and Governance (SMG)
Research Group:	Finance and Accounting (F&A)
Link to this item:	http://purl.utwente.nl/publications/74066
Official URL:	http://dx.doi.org/10.2139/ssrn.1537318
Conference URL:	http://www.tradechakra.com/events/melbourne-australia/finance-and-corporate-governance-4792.php
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