Journal of Corporate Finance Vol. 56 2019
Managerial compensation incentives and corporate debt maturity: Evidence from FAS 123R
Abstract
This paper studies the effect of risk-taking incentives provided by option compensation on corporate debt maturity choices. The Financial Accounting Standard (FAS) 123R is used as a quasi-natural experiment to establish causality. FAS 123R requires firms to expense stock options at fair value, which has resulted in a dramatic reduction in option compensation and managerial risk-taking incentives. We find that treated firms significantly increased debt maturity relative to control firms. Further tests identify that the alleviation of creditor-shareholder agency conflicts due to the adoption of FAS 123R is the underlying mechanism driving the result.
- DOI
- 10.1016/j.jcorpfin.2019.03.006
- Volume
- 56
- Pages
- 388-414
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref