Accounting-Based Compensation and Debt Contracts*

• 成果类型: Article
• 署名作者: Li, Zhi; Wang, Lingling; Wruck, Karen
• 署名单位: Chapman University System; Chapman University; University of Connecticut; University System of Ohio; Ohio State University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12574
• 发表日期: 2020
• 页码: 1475-1511
• 关键词: executive-compensation; financial intermediation; management; firm; performance; INFORMATION; incentives; cost; QUALITY; WEALTH

摘要

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.