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Tournament incentives and firm credit risk: Evidence from credit default swap referenced firms

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  • Lijing Du
  • Jian Huang
  • Bharat A. Jain

Abstract

In this paper, we evaluate the impact of managerial tournament incentives on firm credit risk in credit default swap (CDS) referenced firms. We find that intra‐firm tournament incentives are negatively related to credit risk. Our results suggest that tournament incentives reduce credit risk by alleviating the potential for underinvestment when managers are concerned about exacting empty creditors. Further, we find that tournament incentives decrease credit risk when internal governance is strong or product market competition is intense. Taken together, our results suggest that creditors perceive senior manager tournament incentives (SMTI) as a critical determinant of a firm's credit risk, particularly in settings where managerial risk aversion is high.

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  • Lijing Du & Jian Huang & Bharat A. Jain, 2019. "Tournament incentives and firm credit risk: Evidence from credit default swap referenced firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 46(7-8), pages 913-943, July.
    • Handle: RePEc:bla:jbfnac:v:46:y:2019:i:7-8:p:913-943
    DOI: 10.1111/jbfa.12395
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    Cited by:

    1. Sun, Sophia Li & Habib, Ahsan, 2020. "Determinants and consequences of tournament incentives: A survey of the literature in accounting and finance," Research in International Business and Finance, Elsevier, vol. 54(C).
    2. Thomas R. Kubick & G. Brandon Lockhart, 2021. "Industry tournament incentives and stock price crash risk," Financial Management, Financial Management Association International, vol. 50(2), pages 345-369, June.
    3. Li, Ying & Li, Lingxiao & Zhu, Bing, 2023. "Executive Compensation and Secured Debt: Evidence from REITs," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277606, Verein für Socialpolitik / German Economic Association.
    4. Ghosh, Chinmoy & Huang, Di & Nguyen, Nam H. & Phan, Hieu V., 2023. "CEO tournament incentives and corporate debt contracting," Journal of Corporate Finance, Elsevier, vol. 78(C).
    5. Hasan, Mostafa Monzur & Hossain, Ashrafee & Hossain, Takdir, 2023. "CEO inside debt holdings and credit ratings," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(1).
    6. Yiqing Tan, 2021. "Industry tournament incentives and audit fees," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(3-4), pages 587-612, March.

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