Journal of Corporate Finance Vol. 91 2025
Does managerial compensation impact the likelihood of product market failures? Evidence from inside debt holdings
Abstract
We study the impact of inside debt holdings on the likelihood of product market recalls. Consistent with inside debt better aligning incentives, we find it is negatively associated with subsequent recalls. This relation is pronounced for industries where managers have greater control over the supply chain and when examining severe recalls. Our results hold irrespective of the firm's financial constraints or cash flow risk. Inside debt has the greatest influence on older and longer tenured executives, indicating that managerial risk aversion plays an important role. Overall, our results indicate that compensation policies can have a positive effect by decreasing the likelihood of costly recalls.
- DOI
- 10.1016/j.jcorpfin.2024.102726
- Volume
- 91
- Pages
- 102726
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref