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Top management tournament incentives and credit ratings

Author

Listed:
  • James W. Bannister

    (University of Hartford)

  • Harry A. Newman

    (Fordham University)

  • Emma Y. Peng

    (Fordham University)

Abstract

This paper investigates whether the current level of tournament incentives for top executives is related to the firm’s future credit rating. Greater pay dispersion (our proxy for tournament incentives) has been found to be associated with both greater firm performance and greater firm riskiness. Taking the bondholders’ perspective, credit rating agencies would view increases in performance favorably and increases in riskiness unfavorably, leading to the empirical question of how pay dispersion affects a firm’s credit rating, if at all. We find strong evidence that pay dispersion is negatively associated with credit ratings. We also find that the negative impact of pay dispersion on credit ratings is stronger when firms have greater default risk. Finally, we find weak evidence that strong shareholder rights accentuate the negative relation between pay dispersion and credit ratings.

Suggested Citation

  • James W. Bannister & Harry A. Newman & Emma Y. Peng, 2020. "Top management tournament incentives and credit ratings," Review of Quantitative Finance and Accounting, Springer, vol. 55(2), pages 769-801, August.
    • Handle: RePEc:kap:rqfnac:v:55:y:2020:i:2:d:10.1007_s11156-019-00859-8
    DOI: 10.1007/s11156-019-00859-8
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    References listed on IDEAS

    as
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    Cited by:

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    3. 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).
    4. Irfah Najihah Basir Malan & Lyu Yingkun & Halim Shukri Kamaruddin, 2023. "A Systematic Review on the Executive Compensation Gap and Its Multiple Impacts on the Company," Information Management and Business Review, AMH International, vol. 15(4), pages 284-298.

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    More about this item

    Keywords

    Executive compensation; Tournament incentives; Performance; Risk; Credit ratings;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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