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CEO fixed effects and inside debt compensation

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  • James, Hui L.
  • Benson, Bradley W.
  • Park, Jung Chul

Abstract

This study examines the contribution of CEO unobserved heterogeneity to CEO inside debt compensation. Using a three-way fixed effects model, we find that CEO fixed effects explain a majority of the variation in inside debt. The CEO inside debt compensation explained by CEO fixed effects is also positively associated with firm performance, while the distance from the predicted optimal inside debt is unrelated to firm performance. Further, firms appear to adjust inside debt toward their predicted optimums by minimizing year-over-year deviations. Collectively, our findings indicate that inside debt results from optimal-contracting and help align the interests of CEOs with those of debtholders.

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  • James, Hui L. & Benson, Bradley W. & Park, Jung Chul, 2020. "CEO fixed effects and inside debt compensation," Journal of Business Research, Elsevier, vol. 117(C), pages 71-86.
    • Handle: RePEc:eee:jbrese:v:117:y:2020:i:c:p:71-86
    DOI: 10.1016/j.jbusres.2020.05.021
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    Cited by:

    1. Sheikh, Shahbaz, 2021. "CEO inside debt, market structure and payout policy," International Review of Financial Analysis, Elsevier, vol. 76(C).

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    More about this item

    Keywords

    Inside debt; Deferred compensation; Pensions; CEO fixed effects; Firm performance;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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