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Is CEO pay disparity relevant to seasoned bondholders?

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  • Huang, Guan-Ying
  • Huang, Henry H.
  • Lee, Chun I

Abstract

We demonstrate the existence of a positive relationship between CEO pay disparity and the yield spreads of seasoned corporate bonds, based on a panel data in the U.S. from 2001 to 2012. The evidence is robust against alternative measures of pay disparity, the inclusion of other determinants of yield spreads as well as industry and year effects, and the potential endogeneity problem. More supporting results from subsamples are presented, including those in the periods of pre- and post-subprime crisis, with varying degrees of agency problems related to free cash flow, with dissimilar default risk, and with different maturities. We further demonstrate that CEO pay disparity does not merely reflect, but rather goes beyond many factors of corporate governance in helping bondholders assess the risks they face. All together, these results convincingly show that pay disparity matters to bondholders.

Suggested Citation

  • Huang, Guan-Ying & Huang, Henry H. & Lee, Chun I, 2019. "Is CEO pay disparity relevant to seasoned bondholders?," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 271-289.
    • Handle: RePEc:eee:reveco:v:64:y:2019:i:c:p:271-289
    DOI: 10.1016/j.iref.2019.05.014
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    Cited by:

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    2. Ali, Searat & Hussain, Nazim & Iqbal, Jamshed, 2021. "Corporate governance and the insolvency risk of financial institutions," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).

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    More about this item

    Keywords

    Pay disparity; Yield spreads; Credit risk;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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