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How Does CEO Equity-based Compensation Affect Firm’s Propensity of Issuing New Securities?

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  • Huaibing Yu

Abstract

CEO equity-based compensation is designed to reduce the agency problem between top management and shareholders, which should have direct consequences on firm’s capital structure decisions as evidenced by the behaviors of new security issuances. This research paper focuses on the impact on the propensity of issuing new securities by two common CEO equity-based compensations – option compensation and restricted stock compensation. Empirical results show that CEO option compensation yields statistically significant evidences that it will lower firm’s propensity of SEO issuance and debt issuance. However, it has no direct effect on firm’s preferred stock issuance. On the other side, CEO restricted stock compensation has only statistically significant and negative impact on firm’s propensity of SEO issuance. Moreover, CEO option compensation has much higher estimated marginal effects in absolute value on SEO issuance than CEO restricted stock compensation does. JEL classification numbers: G32; G34Keywords: CEO Equity-based Compensation, Option Compensation, Restricted Stock Compensation, SEO Issuance, Preferred Stock Issuance, Debt Issuance

Suggested Citation

  • Huaibing Yu, 2019. "How Does CEO Equity-based Compensation Affect Firm’s Propensity of Issuing New Securities?," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 9(4), pages 1-6.
    • Handle: RePEc:spt:apfiba:v:9:y:2019:i:4:f:9_4_6
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    References listed on IDEAS

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    Cited by:

    1. Sun, Liang & Yu, Huaibing, 2022. "The effects of busy board on firm’s probability to pay dividends," Research in International Business and Finance, Elsevier, vol. 60(C).

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    More about this item

    Keywords

    ceo equity-based compensation; option compensation; restricted stock compensation; seo issuance; preferred stock issuance; debt issuance;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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