Ceo Compensation And Credit Default Swaps
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Ceo Compensation And Credit Default Swaps
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Author : Hsin-Hui Chiu
language : en
Publisher:
Release Date : 2017
Ceo Compensation And Credit Default Swaps written by Hsin-Hui Chiu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
Executive compensation is designed to create incentives for CEOs to act in the best interest of shareholders. Short-term (bonus) and equity-based incentives induce risk taking behaviors of the CEO that could further change a firm's risk exposure. This article examines the linkage between compensation components and the impacts on a firm's credit risk using data from the U.S. and Germany. In the U.S., we find a positive relation between equity-based compensation and credit default swap spreads. Similar positive relation is also found between short-term incentive bonus pay suggesting compensation influece more risk taking for the U.S. firms. However, we do not find significantly positive relation between equity-based incentive and a firm's credit risk in German firms. Our results seem to indicate that bonus pay is large portion of pay for German CEOs therefore restraint CEOs' risk taking strategies.
Credit Default Swaps And Risk Taking Incentives In Ceo Compensation
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Author : Jieying Hong
language : en
Publisher:
Release Date : 2019
Credit Default Swaps And Risk Taking Incentives In Ceo Compensation written by Jieying Hong and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
What is the role of creditors in shaping the design of risk-taking incentives in managerial compensation? This paper provides empirical evidence by investigating how the trading of credit default swaps (CDS) shapes the design of CDS-referenced firm's managerial compen- sation, especially its risk-taking incentives. We find that CEO compensation vega increases significantly when a firm has CDS referring its debt, and the causal relationship is verified by a set of endogeneity tests. The CDS effect is stronger for firms with larger risk-shifting agency conflict and lower bankruptcy risk, consistent with the view that the alleviation of creditors' risk concerns is the main mechanism driving this effect.
Ceo Stock Option Compensation And The Use Of Credit Default Swaps In Relation To European Bank Risk
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Author : Bassam Al-Own
language : en
Publisher:
Release Date : 2015
Ceo Stock Option Compensation And The Use Of Credit Default Swaps In Relation To European Bank Risk written by Bassam Al-Own and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
Deferred Compensation Risk And Company Value
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Author : Chenyang Wei
language : en
Publisher: DIANE Publishing
Release Date : 2010-10
Deferred Compensation Risk And Company Value written by Chenyang Wei and has been published by DIANE Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010-10 with Business & Economics categories.
There have been suggestions that companies pay top executives with deferred compensation (DC), a type of incentive known as inside debt. Recent SEC disclosure reforms greatly increased the transparency of DC. The authors investigate stockholder and bondholder reactions to companies¿ initial reports of their CEOs¿ inside debt positions in early 2007, when new disclosure rules took effect. They find that bond prices rise, equity prices fall, and the volatility of both securities drops upon disclosures by firms whose CEOs have sizable defined benefit pensions or DC. The results indicate a reduction in firm risk, a transfer of value from equity toward debt, and an overall destruction of enterprise value when a CEO¿s DC holdings are large. Charts and tables.
Credit Default Swaps Agency Problems And Management Incentives
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Author : Jongsub Lee
language : en
Publisher:
Release Date : 2017
Credit Default Swaps Agency Problems And Management Incentives written by Jongsub Lee and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
We show in a theoretical model that credit default swaps induce managerial agency problems through two channels: reducing the opportunity for managers to transfer value to equityholders from creditors via strategic default, and reducing the intensity of monitoring by creditors, which leads to greater CEO diversion of assets as perquisites. We further show that boards can use compensation awards that increase managerial performance incentives (delta) and risk-taking incentives (vega) in order to mitigate these two agency problems, with increases in managerial vega being particularly useful to alleviate the strategic default-related agency problem. We study equity compensation awards to CEOs of S&P 1500 companies during 2001-2015 and find that they occur in patterns consistent with these predictions.
Credit Default Swaps Agency Problems And Management Incentives
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Author : Jongsub Lee
language : en
Publisher:
Release Date : 2017
Credit Default Swaps Agency Problems And Management Incentives written by Jongsub Lee and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with Corporate governance categories.
We show in a theoretical model that credit default swaps induce managerial agency problems through two channels: reducing the opportunity for managers to transfer value to equityholders from creditors via strategic default, and reducing the intensity of monitoring by creditors, which leads to greater CEO diversion of assets as perquisites. We further show that boards can use compensation awards that increase managerial performance incentives (delta) and risk-taking incentives (vega) in order to mitigate these two agency problems, with increases in managerial vega being particularly useful to alleviate the strategic default-related agency problem. We study equity compensation awards to CEOs of S&P 1500 companies during 2001-2015 and find that they occur in patterns consistent with these predictions.
Does Credit Default Swap Initiation Affect Executive Compensation
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Author : Yi Dong
language : en
Publisher:
Release Date : 2017
Does Credit Default Swap Initiation Affect Executive Compensation written by Yi Dong and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
In this study, we examine whether the initiation of credit default swaps affects the reference entity's executive compensation design. With both human capital and financial capital highly associated with the firm's bankruptcy risk, risk averse managers prefer cash compensation over option compensation to hedge their individual exposure to the firm's bankruptcy risk. Consistent with this notion, we find a significant increase (decrease) in the proportion of cash (option) compensation around the initiation of CDS trading. Such a finding survives a matching procedure, a falsification test employing a different CDS initiation time and an instrumental variable approach to address the endogeneity. Further, the effect of CDS trading on firms' compensation design is more pronounced for firms with higher distress risk and for managers who are more powerful.
Bank Strategy Governance And Ratings
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Author : P. Molyneux
language : en
Publisher: Springer
Release Date : 2011-07-26
Bank Strategy Governance And Ratings written by P. Molyneux and has been published by Springer this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011-07-26 with Business & Economics categories.
This text comprises a selection of papers that provide state-of-the-art insights into research focusing on dimensions of bank strategy, governance and the role of credit rating agencies that were presented at the European Association of University Teachers of Banking and Finance Conference, September 2010.
Leverage Choice And Credit Spread Dynamics When Managers Risk Shift
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Author : Murray Carlson
language : en
Publisher:
Release Date : 2008
Leverage Choice And Credit Spread Dynamics When Managers Risk Shift written by Murray Carlson and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
We provide new insights that link compensation structure terms to credit spreads by modeling the dynamic risk choice of a risk-averse manager paid with performance insensitive pay (cash) and performance sensitive pay (stock). The model predicts that credit spreads are increasing in the ratio of cash-to-stock. When the manager has discretion to choose debt levels, a trade-off between tax benefits and utility cost from ex-post asset substitution arises. The resulting optimal initial leverage is high with safe (risky) debt when cash-to-stock ratios are low (high), while moderate cash-to-stock ratios are associated with low initial leverage. In an empirical exercise using a large cross-section of 608 US based corporate credit default swaps (CDS) covering 2001-2006, we find strong evidence that CDS rates are high for CEOs with high salaries relative to stock and option holdings.
A Modern Guide To Financial Shocks And Crises
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Author : Ferri, Giovanni
language : en
Publisher: Edward Elgar Publishing
Release Date : 2021-12-14
A Modern Guide To Financial Shocks And Crises written by Ferri, Giovanni and has been published by Edward Elgar Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-12-14 with Business & Economics categories.
Offering a comprehensive guide to financial shocks and crises, this book explores their increasing occurrence in current market economies, as well as their power to wrench the macroeconomy. The book discusses three critical questions: what causes financial shocks; which channels may exacerbate their impact; and what policies could help avoid them or limit their negative effect on the economy and society at large.