A model of dynamic compensation and capital structure

• 成果类型: Article
• 署名作者: He, Zhiguo
• 署名单位: University of Chicago
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2011.01.005
• 发表日期: 2011
• 页码: 351-366
• 关键词: Continuous-time contracting; capital structure; CARA (exponential) preference; firm growth; Size-heterogeneity; PAY-PERFORMANCE SENSITIVITY

摘要

This paper studies the optimal compensation problem between shareholders and the agent in the Leland (1994) capital structure model, and finds that the debt-overhang effect on the endogenous managerial incentives lowers the optimal leverage. Consistent with data, our model delivers a negative relation between pay-performance sensitivity and firm size, and the interaction between debt-overhang and agency issue leads smaller firms to take less leverage relative to their larger peers. During financial distress, a firm's cash flow becomes more sensitive to underlying performance shocks due to debt-overhang. The implications on credit spreads and debt covenants are also considered. Published by Elsevier B.V.