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Executive compensation and corporate financing policies: Evidence from CEO inside debt

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  • Freund, Steven
  • Latif, Saira
  • Phan, Hieu V.

Abstract

We examine the relation between chief executive officer (CEO) inside debt holdings and the firm's choice between debt and equity financing when it accesses external capital markets. We find positive relations between CEO inside debt holdings and both the firm's likelihood to issue debt and the proportion of debt of their total external financing. Additional analysis indicates that CEO inside debt is negatively related to the cost of debt and positively related to the stock price reaction around the public debt issue announcement. Our results are consistent with the argument that inside debt aligns managers' and debtholders' interests leading to favorable debt terms that motivate firms to raise debt to meet their capital needs.

Suggested Citation

  • Freund, Steven & Latif, Saira & Phan, Hieu V., 2018. "Executive compensation and corporate financing policies: Evidence from CEO inside debt," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 484-504.
    • Handle: RePEc:eee:corfin:v:50:y:2018:i:c:p:484-504
    DOI: 10.1016/j.jcorpfin.2017.10.002
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    5. Buchanan, Bonnie G. & Cao, Cathy Xuying & Wang, Shuhui, 2021. "Corporate social responsibility and inside debt: The long game," International Review of Financial Analysis, Elsevier, vol. 78(C).
    6. Tianyi Ma & Minghui Jiang & Xuchuan Yuan, 2020. "Cash Salary, Inside Equity, or Inside Debt?—The Determinants and Optimal Value of Compensation Structure in a Long-term Incentive Model of Banks," Sustainability, MDPI, vol. 12(2), pages 1-24, January.
    7. Min-Rui Choo & Chih-Wei Wang & Chi Yin & Jie-Lun Li, 2021. "Managerial Ability and External Financing," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 28(2), pages 207-241, June.
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    10. Nguyen, Phuong L. & Galpin, Neal & Twite, Garry, 2022. "New active blockholders and adjustment of CEO relative incentive ratios," Journal of Corporate Finance, Elsevier, vol. 72(C).
    11. Tat Dat Bui & Mohd Helmi Ali & Feng Ming Tsai & Mohammad Iranmanesh & Ming-Lang Tseng & Ming K Lim, 2020. "Challenges and Trends in Sustainable Corporate Finance: A Bibliometric Systematic Review," JRFM, MDPI, vol. 13(11), pages 1-26, October.
    12. Freund, Steven & Nguyen, Hien T. & Phan, Hieu V. & Tang, Hien T., 2021. "CEO inside debt and internal capital market efficiency," Journal of Corporate Finance, Elsevier, vol. 68(C).
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    More about this item

    Keywords

    Executive compensation; Inside debt; Financing policies; Security issuance;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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