Accounting-based compensation and debt contracts

Zhi Li (Chapman University), Lingling Wang (University of Connecticut), Karen H. Wruck (The Ohio State University)

We examine how accounting-based compensation plans influence a firm's contracts with its creditors. After granting long-term accounting-based compensation plans (LTAPs) to CEOs, firms pay lower spreads and have fewer restrictive covenants in new bank loans. Mechanisms leading to lower borrowing cost include improvements in debt repayment ability, reduced shareholder-debtholder conflicts, and reduced risk-taking incentives. Creditors view LTAPs as a substitute for monitoring, adjust covenant design based on LTAP features, and value plans with concave performance-payout functions and reasonable performance targets. A firm's credit rating improves and CDS spread declines after LTAP grants, suggesting that LTAPs help reduce firms' credit risk

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Year of publication:	[2018] ; CURRENT DRAFT: February 2, 2018
Authors:	Li, Zhi ; Wang, Lingling ; Wruck, Karen H.
Publisher:	[Columbus, Ohio] : The Ohio State University, Fisher College of Business, Charles A. Dice Center for Research in Financial Economics
Subject:	Accounting-based Compensation Plan \| Agency Costs \| Agency Problems \| Bank Loans \| Bond Yield \| Borrowing Cost \| CEO Compensation \| CDS Spreads \| Conflicts of Interest \| Debtholder-Shareholder Conflicts \| Credit Ratings \| Debt Contracts \| Debt Covenants \| Loan Spreads \| Public Bond Offerings \| Prinzipal-Agent-Theorie \| Agency theory \| Kreditwürdigkeit \| Credit rating \| Öffentliche Anleihe \| Public bond \| Fremdkapital \| Debt financing \| Kredit \| Credit \| Anleihe \| Bond \| Unternehmensanleihe \| Corporate bond \| Kreditderivat \| Credit derivative \| Managervergütung \| Executive compensation \| Kapitalkosten \| Cost of capital \| Kreditrisiko \| Credit risk \| Kapitalstruktur \| Capital structure \| Zinsstruktur \| Yield curve \| Zins \| Interest rate \| Kreditgeschäft \| Bank lending

Extent:	1 Online-Ressource (circa 58 Seiten) Illustrationen
Series:	Fisher College of Business working paper series. - Columbus, Ohio : [Verlag nicht ermittelbar], ZDB-ID 2189279-9. - Vol. WP 2017, 07 Fisher College of Business Working Paper ; No. 2017-03-007 Fisher College of Business working paper series. - Columbus, Ohio : [Verlag nicht ermittelbar], ZDB-ID 2412551-9. - Vol. WP 2017-03-007
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Graue Literatur ; Non-commercial literature ; Arbeitspapier ; Working Paper
Language:	English
Other identifiers:	10.2139/ssrn.2921223 [DOI]
Classification:	M52 - Compensation and Compensation Methods and Their Effects (stock options, fringe benefits, incentives, family support programs) ; M41 - Accounting ; J33 - Compensation Packages; Payment Methods ; G30 - Corporate Finance and Governance. General
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10011963302