Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142256
Authors: 
Colonnello, Stefano
Curatola, Giuliano
Ngoc Giang Hoang
Year of Publication: 
2016
Series/Report no.: 
IWH Discussion Papers 20/2016
Abstract: 
We develop a model of managerial compensation structure and asset risk choice. The model provides predictions about the relation between credit spreads and different compensation components. First, we show that credit spreads are decreasing in inside debt only if it is unsecured. Second, the relation between credit spreads and equity incentives varies depending on the features of inside debt. We show that credit spreads are increasing in equity incentives. This relation becomes stronger as the seniority of inside debt increases. Using a sample of U.S. public firms with traded credit default swap (CDS) contracts, we provide evidence supportive of the model’s predictions.
Subjects: 
inside debt
credit spreads
risk-taking
JEL: 
G32
G34
Document Type: 
Working Paper

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