Jie Chen
Does CDS trading affect risk-taking incentives in managerial compensation?
Chen, Jie; Leung, Sau; Song, Wei; Avino, Davide
Abstract
We find that managers receive more risk-taking incentives in their compensation packages once their firms are referenced by credit default swap (CDS) trading, particularly when institutional ownership is high and when firms are in financial distress. These findings provide suggestive evidence that boards offer pay packages that encourage greater risk taking to take advantage of the reduced creditor monitoring after CDS introduction. Further, we show that the onset of CDS trading attenuates the effect of vega on leverage, consistent with the threat of exacting creditors restraining managerial risk appetite. JEL classification: G32; G34
Citation
Chen, J., Leung, S., Song, W., & Avino, D. (2019). Does CDS trading affect risk-taking incentives in managerial compensation?. Journal of Banking and Finance, Article 105485. https://doi.org/10.1016/j.jbankfin.2019.01.004
Journal Article Type | Article |
---|---|
Acceptance Date | Jan 4, 2019 |
Online Publication Date | Jan 7, 2019 |
Publication Date | Jan 7, 2019 |
Deposit Date | Jul 20, 2021 |
Publicly Available Date | Jan 8, 2022 |
Journal | Journal of Banking and Finance |
Print ISSN | 0378-4266 |
Publisher | Elsevier |
Peer Reviewed | Peer Reviewed |
Article Number | 105485 |
DOI | https://doi.org/10.1016/j.jbankfin.2019.01.004 |
Keywords | Credit default swaps; Executive compensation; Risk taking; Leverage |
Public URL | https://nottingham-repository.worktribe.com/output/5808972 |
Publisher URL | https://www.sciencedirect.com/science/article/abs/pii/S0378426619300044 |
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