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Securitization of corporate assets and executive compensation

  • Riachi, Ilham
  • Schwienbacher, Armin
Registered author(s):

    We examine the effect of corporate asset-backed securitization on managerial compensation. We find that CEO compensation increases after securitization of corporate assets, which is consistent with two distinct theoretical views: (1) asset-backed securitization improves the efficiency of performance-based compensation as corporate performance becomes a better signal of managerial effort and (2) securitization of corporate assets mitigates liquidity constraints so that firms can make more efficient investments. We find that securitization primarily affects short-term accounting components (bonuses) and less equity-based components of the CEO's performance-based compensation. Further investigation reveals support for the second view of liquidity but not the first view of moral hazard. The results are robust to controlling for both possible self-selection biases associated with the decision to rely on asset-backed securitization as a means of external financing and simultaneity between executive compensation and financial decisions (securitization and leverage).

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    File URL: http://www.sciencedirect.com/science/article/pii/S0929119913000242
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    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 21 (2013)
    Issue (Month): C ()
    Pages: 235-251

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    Handle: RePEc:eee:corfin:v:21:y:2013:i:c:p:235-251
    DOI: 10.1016/j.jcorpfin.2013.02.005
    Contact details of provider: Web page: http://www.elsevier.com/locate/jcorpfin

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