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Secured debt and managerial incentives

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  • Michael Alderson
  • Naresh Bansal
  • Brian Betker

Abstract

Financial theory holds that firms can control agency costs through the use of short-term and secured debt. We examine the relation between the use of secured debt and the incentive of the manager to increase the risk of the firm, as measured by vega. We find that firms utilize secured debt to a lesser extent when managerial volatility sensitivity is higher. Our results suggest that these same firms employ short-term debt as the primary tool to control risk-shifting. Managers with a high risk appetite avoid secured debt, but appear to do so without compromising the interests of the shareholders. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Michael Alderson & Naresh Bansal & Brian Betker, 2014. "Secured debt and managerial incentives," Review of Quantitative Finance and Accounting, Springer, vol. 43(3), pages 423-440, October.
    • Handle: RePEc:kap:rqfnac:v:43:y:2014:i:3:p:423-440
    DOI: 10.1007/s11156-013-0380-x
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    2. Li, Ying & Li, Lingxiao & Zhu, Bing, 2023. "Executive Compensation and Secured Debt: Evidence from REITs," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277606, Verein für Socialpolitik / German Economic Association.
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    More about this item

    Keywords

    Secured debt; Managerial incentives; Executive compensation; Financing policy; G30; G32;
    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

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