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Is executive compensation a substitute governance mechanism to debt financing and leasing?

Minhat, M and Dzolkarnaini, N 2015, 'Is executive compensation a substitute governance mechanism to debt financing and leasing?' , Applied Economics, 48 (14) , pp. 1293-1302.

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This study examines whether and how CEO equity incentives relate to financing choices (i.e., debt and leases). Using manually collected CEO compensation and lease data for a sample of large UK firms, we found evidence of a negative relationship between CEO equity incentives and firm leverage. We also found that CEO equity incentives and leases are negatively related. The results are consistent with the theory introduced in this study on the substitutability of executive compensation and firm’s debt/lease financing. Our findings represent fresh empirical evidence and renewed interpretation regarding the relationship between executive equity-based incentives and firm’s financing choices. The substitutability theory we introduced here suggests that firms with greater use of debt and/or leases will implement less equity-based compensation in mitigating the agency cost of equity.

Item Type: Article
Uncontrolled Keywords: Executive compensation, CEO pay, CEO incentives, Capital structure, Debt, Leasing, Corporate governance
Themes: Media, Digital Technology and the Creative Economy
Schools: Schools > Salford Business School > Business and Management Research Centre
Journal or Publication Title: Applied Economics
Publisher: Taylor & Francis
Refereed: Yes
ISSN: 0003-6846
Related URLs:
Funders: Non funded research
Depositing User: Dr Nazam Dzolkarnaini
Date Deposited: 19 Oct 2015 13:06
Last Modified: 02 Feb 2016 09:21

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