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CEO tournament incentives and corporate debt contracting

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  • Ghosh, Chinmoy
  • Huang, Di
  • Nguyen, Nam H.
  • Phan, Hieu V.

Abstract

This study examines the relation between CEO tournament incentives, proxied by the difference between CEO pay and the median pay of the senior executives of a given firm, and corporate debt contracting. We find negative relations between CEO pay gap and the cost of debt and default risk, and a positive relation between CEO pay gap and debt maturity. Further analysis indicates that the results are stronger for firms with near-retirement CEOs, which are more likely to run CEO tournaments. Our evidence suggests that creditors view tournament incentives favorably and are willing to provide better debt terms.

Suggested Citation

  • Ghosh, Chinmoy & Huang, Di & Nguyen, Nam H. & Phan, Hieu V., 2023. "CEO tournament incentives and corporate debt contracting," Journal of Corporate Finance, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:corfin:v:78:y:2023:i:c:s0929119922001638
    DOI: 10.1016/j.jcorpfin.2022.102320
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    More about this item

    Keywords

    Executive compensation; Tournament incentives; CEO pay gap; Debt maturity; Cost of debt; Default risk;
    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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