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.
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Journal of Corporate Finance
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
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