Performance Contingencies in CEO Equity Awards and Debt Contracting

• 成果类型: Article
• 署名作者: Bizjak, John M.; Kalpathy, Swaminathan L.; Mihov, Vassil T.
• 署名单位: Texas Christian University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-52317
• 发表日期: 2019
• 页码: 57-82
• 关键词: executive-compensation; earnings management; incentives; INFORMATION; covenants; maturity; cost

摘要

We find that firms that grant performance-contingent (p-c) equity awards with accounting-based vesting conditions to their CEOs have lower cost of debt and less restrictive loan terms. The benefits of p-c accounting-based awards on debt financing are greater when the moral hazard problem faced by debtholders is potentially more significant-for example, for firms with poorer credit ratings and lower asset tangibility. We find some evidence that certain types of p-c equity awards with stock price-based conditions increase the cost of debt financing. The adoption of p-c accounting-based awards increases firm value, as indicated by stock and bond event studies. Overall, our findings suggest that the incentive compatibility of accounting-based p-c awards mitigates the potential agency conflict between shareholders and debtholders.