The relation between earnings-based measures in firm debt contracts and CEO pay sensitivity to earnings

• 成果类型: Article
• 署名作者: Rhodes, Adrienne
• 署名单位: Texas A&M University System; Texas A&M University College Station
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2015.11.002
• 发表日期: 2016
• 关键词: executive-compensation; corporate governance; performance; INFORMATION; INVESTMENT; incentives; AGENCY; COSTS

摘要

I investigate how implicit incentives provided by earnings-based debt covenants affect the structure of CEO compensation contracts. This provides a new and unique view of how the CEO's incentives are shaped by not only his compensation contract but also debt contracts. I find when debt contracts contain an earnings-based covenant, the CEO's pay sensitivity to earnings is muted. Additionally, I find some evidence that pay sensitivity to earnings varies with earnings-based covenant slack. This study provides evidence consistent with shareholders rebalancing the CEO's earnings incentives in the presence of earnings-based covenants, thereby tilting incentives away from earnings performance. (C) 2015 Elsevier B.V. All rights reserved.