This paper examines whether, and to what extent, rank-and-file employee equity incentive Delta (Employee Delta ), the pay-performance sensitivity of employee’s equity holding, influences the knowledge deployment strategy. Exploiting a unique dataset that directly captures previously unexplored rank-and-file employee equity incentive plans and their design features, we provide three main findings: First, employing an instrumental variable approach, we document a positive causal relationship between employee Delta and firm-specific knowledge due to prudent risk-taking incentive. Second, this effect is stronger when the grants are given to core-technical employees, performance hurdles are not extremely challenging, vesting is weighted towards later periods, grant is broad based and firms are older. Third, we show that employee Delta promotes firm-specific knowledge through two channels: the accumulation of specialized knowledge and the extension of employees’ contribution horizons. These findings suggest that carefully designed equity incentives for rank-and-file employees (especially core-technical employees) can play a critical role in deploying firm specific knowledge, thereby enhancing long term competitive advantage.

This paper extends our knowledge of corporate debt maturity structure by examining whether and to what extent overconfident CEOs affect maturity decisions. Consistent with a demand side story, we find that firms with overconfident CEOs tend to adopt a shorter debt maturity structure by using a higher proportion of short-term debt (due within 12months). This behavior of overconfident CEOs is not deterred by the high liquidity risk associated with such a financing strategy. Our demand side explanation remains robust even after considering six possible alternative drivers including a competing supply side explanation (in which creditors are reluctant to extend long-term debt to overconfident CEOs).