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Managerial risk-taking incentives and debt diversity: Evidence from FAS 123R

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  • Choi, Daewoung
  • Lee, Jinsook
  • Yi, Ha-Chin

Abstract

We investigate how managerial risk-taking incentives affect corporate borrowing diversity using the adoption of FAS 123R as a quasi-natural experiment. We find that a reduction of managerial risk-taking incentives induced by FAS 123R leads to greater borrowing diversity. We also observe reduced capitalized leases and convertible debt issuance following FAS 123R. Overall, our findings suggest that CEOs are less likely to promote a diversified debt structure in the presence of greater compensation risk-taking incentives (vega).

Suggested Citation

  • Choi, Daewoung & Lee, Jinsook & Yi, Ha-Chin, 2023. "Managerial risk-taking incentives and debt diversity: Evidence from FAS 123R," Finance Research Letters, Elsevier, vol. 58(PB).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pb:s1544612323007602
    DOI: 10.1016/j.frl.2023.104388
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    More about this item

    Keywords

    Managerial risk-taking incentives; Borrowing diversity; Debt sources; FAS 123R;
    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
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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