Skip to main content
Duke University Libraries
DukeSpace Scholarship by Duke Authors
  • Login
  • Ask
  • Menu
  • Login
  • Ask a Librarian
  • Search & Find
  • Using the Library
  • Research Support
  • Course Support
  • Libraries
  • About
View Item 
  •   DukeSpace
  • Theses and Dissertations
  • Duke Dissertations
  • View Item
  •   DukeSpace
  • Theses and Dissertations
  • Duke Dissertations
  • View Item
JavaScript is disabled for your browser. Some features of this site may not work without it.

Executive Compensation and Firm Leverage

Thumbnail
View / Download
519.6 Kb
Date
2013
Author
Albert, Michael Joseph
Advisor
Robinson, David
Repository Usage Stats
403
views
1,644
downloads
Abstract

This dissertation explores the role of executive compensation in determining the capital structure decisions of a firm. CEOs experience a large personal cost of default that interacts through the risk adjusted probability of default with their compensation contract. Since default happens in a particularly costly state of the world for a CEO whose compensation contract consists primarily of pay for performance elements, i.e. a CEO who has a large personal equity stake in the firm, a large pay performance sensitivity is negatively and significantly associated with firm leverage choice. I document this effect in detail for the first time, and I show that it is both statistically robust and significant in magnitude, approximately 1\% of firm value. I show that this effect is driven by the stock holdings of the CEO, not the option holdings. I provide a simple principal agent model that explains the observed negative relationship and makes additional predictions on the relationship of other firm characteristics to pay performance sensitivity and leverage. I then test and confirm these predictions empirically using a standard OLS framework and an instrumental variable approach to control for endogeneity in the compensation contract. I also look at leverage adjustment speeds and show that CEOs with higher pay performance sensitivity adjust leverage upwards towards target values more slowly and downwards more quickly than their peers, and I interpret this as direct evidence that CEOs are actively managing personal risk through firm leverage choice.

Type
Dissertation
Department
Business Administration
Subject
Finance
Economics
Economics, Labor
Bankruptcy
Equity
Executive Compensation
Firm Leverage
Pay Performance Sensitivity
Termination
Permalink
https://hdl.handle.net/10161/7231
Citation
Albert, Michael Joseph (2013). Executive Compensation and Firm Leverage. Dissertation, Duke University. Retrieved from https://hdl.handle.net/10161/7231.
Collections
  • Duke Dissertations
More Info
Show full item record
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.

Rights for Collection: Duke Dissertations


Works are deposited here by their authors, and represent their research and opinions, not that of Duke University. Some materials and descriptions may include offensive content. More info

Make Your Work Available Here

How to Deposit

Browse

All of DukeSpaceCommunities & CollectionsAuthorsTitlesTypesBy Issue DateDepartmentsAffiliations of Duke Author(s)SubjectsBy Submit DateThis CollectionAuthorsTitlesTypesBy Issue DateDepartmentsAffiliations of Duke Author(s)SubjectsBy Submit Date

My Account

LoginRegister

Statistics

View Usage Statistics
Duke University Libraries

Contact Us

411 Chapel Drive
Durham, NC 27708
(919) 660-5870
Perkins Library Service Desk

Digital Repositories at Duke

  • Report a problem with the repositories
  • About digital repositories at Duke
  • Accessibility Policy
  • Deaccession and DMCA Takedown Policy

TwitterFacebookYouTubeFlickrInstagramBlogs

Sign Up for Our Newsletter
  • Re-use & Attribution / Privacy
  • Harmful Language Statement
  • Support the Libraries
Duke University