A model of managerial compensation, firm leverage and credit stimulus
We study a model in which leverage and compensation are both choice variables for the firm and borrowing spreads are endogenous. First, we analyze the correlation between leverage and variable compensation. We show that allowing for endogenous compensation and leverage can explain the conflicting fi...
| Autores: | , , , |
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| Tipo de recurso: | artículo |
| Fecha de publicación: | 2024 |
| País: | España |
| Institución: | IE |
| Repositorio: | Repositorio IE |
| OAI Identifier: | oai:repositorio.ie.edu:20.500.14417/3295 |
| Acceso en línea: | https://doi.org/10.1016/j.jfs.2024.101248 https://hdl.handle.net/20.500.14417/3295 |
| Access Level: | acceso abierto |
| Palabra clave: | Compensation Credit policies Executive ownership Leverage 53 Ciencias Económicas ODS 8 - Trabajo decente y crecimiento económico |
| Sumario: | We study a model in which leverage and compensation are both choice variables for the firm and borrowing spreads are endogenous. First, we analyze the correlation between leverage and variable compensation. We show that allowing for endogenous compensation and leverage can explain the conflicting findings of the empirical literature. We uncover a new channel of complementarity between effort and leverage that induces a correlation sign opposite to what current theoretical models predict. Second, we study the dynamics of leverage and compensation design after a credit stimulus. We derive a set of new empirical predictions. For outward-shifts in credit supply, variable compensation is increasing in leverage growth. Moreover, variable compensation increases after the credit stimulus, especially for firms with low idiosyncratic risk. |
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