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Industry tournament incentives and debt contracting

Author

Listed:
  • Thomas R. Kubick

    (University of Nebraska-Lincoln)

  • G. Brandon Lockhart

    (Clemson University)

  • David C. Mauer

    (University of North Carolina at Charlotte)

Abstract

We test whether industry tournament incentives (ITI) for CEOs influence debt contracting. Measuring ITI as the pay gap between a CEO and the highest-paid industry peer, we find that firm credit ratings decrease and loan spreads and the tightness of non-price loan features increase with the industry pay gap. We find that a history of income increasing discretionary accruals and accounting restatements accentuate the influence of ITI on the cost of loans, while more restrictive loan contracts, greater alignment of managerial and creditor incentives, and higher default risk attenuate the influence of ITI on the cost of loans.

Suggested Citation

  • Thomas R. Kubick & G. Brandon Lockhart & David C. Mauer, 2024. "Industry tournament incentives and debt contracting," Review of Quantitative Finance and Accounting, Springer, vol. 63(4), pages 1281-1321, November.
    • Handle: RePEc:kap:rqfnac:v:63:y:2024:i:4:d:10.1007_s11156-024-01292-2
    DOI: 10.1007/s11156-024-01292-2
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    More about this item

    Keywords

    Tournament incentives; Executive compensation; Bank loans; Debt contracting; Financial reporting;
    All these keywords.

    JEL classification:

    • 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
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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