CEO tournament incentives and corporate debt contracting

Authors

Chinmoy Ghosh
Di Huang
Nam H. Nguyen, The University of Texas Rio Grande Valley
Hieu V. Phan

Document Type

Article

Publication Date

2-2023

Abstract

This study examines the relation between CEO tournament incentives, proxied by the difference between CEO pay and the median pay of the senior executives of a given firm, and corporate debt contracting. We find negative relations between CEO pay gap and the cost of debt and default risk, and a positive relation between CEO pay gap and debt maturity. Further analysis indicates that the results are stronger for firms with near-retirement CEOs, which are more likely to run CEO tournaments. Our evidence suggests that creditors view tournament incentives favorably and are willing to provide better debt terms.

Comments

Original published version available at https://doi.org/10.1016/j.jcorpfin.2022.102320

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.

Publication Title

Journal of Corporate Finance

DOI

10.1016/j.jcorpfin.2022.102320

Recommended Citation

Ghosh, C., Huang, D., Nguyen, N.H. and Phan, H.V., 2023. CEO tournament incentives and corporate debt contracting. Journal of Corporate Finance, 78, p.102320. https://doi.org/10.1016/j.jcorpfin.2022.102320