CEO short-term incentives and the agency cost of debt

• 成果类型: Article
• 署名作者: Akins, Brian; Bitting, Jonathan; De Angelis, David; Gaulin, Maclean
• 署名单位: Rice University; University of North Carolina; Appalachian State University; University of Houston System; University of Houston; Utah System of Higher Education; University of Utah
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.13021
• 发表日期: 2025
• 页码: 1388-1422
• 关键词: CREDITOR CONTROL RIGHTS; executive-compensation; manipulation; VIOLATIONS; management; PROVISIONS; duration; earnings; horizon; DESIGN

摘要

This paper shows that creditors' horizon interests impact the design of CEO compensation contracts. Using a regression discontinuity design, we find that borrowing firms provide shorter incentives to their CEO following a loan covenant violation. They do so by decreasing the horizon of pay and tilting the choice of performance metrics toward accounting goals, in particular short-term ones. This effect is stronger when creditors' interests are more immediate, such as among loans with short remaining maturity and when borrowers have lower cash reserves. This effect is weaker when the cost to shareholders is higher, such as among firms with high growth opportunities. Together these results are consistent with boards intending to facilitate renegotiation and mitigate repayment risk while balancing shareholder interests. Overall, our evidence supports a novel reason for the use of short-term incentives, namely to reduce the agency cost of debt.