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Corporate short-termism and the use of performance-sensitive debt

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  • Miao, Zixia
  • Huang, Yiping
  • Lv, Yingyi

Abstract

We develop a dynamic agency model to investigate the impacts of performance-sensitive debt (PSD) on managers’ long-term and short-term efforts. Compared with straight debt, PSD reduces incentive costs and, in turn, increases long-term managerial effort. Moreover, PSD mitigates the excessive pursuit of short-term efforts when long-term and short-term efforts are substitutes, thereby alleviating short-termism. Our analysis provides an explanation for the use of PSD in the context of managerial multitasking, particularly among smaller firms.

Suggested Citation

  • Miao, Zixia & Huang, Yiping & Lv, Yingyi, 2025. "Corporate short-termism and the use of performance-sensitive debt," Finance Research Letters, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:finlet:v:75:y:2025:i:c:s1544612325000996
    DOI: 10.1016/j.frl.2025.106834
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    References listed on IDEAS

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    More about this item

    Keywords

    Performance-sensitive debt; Contracting; Financing;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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