Top Management Incentives And The Pricing Of Corporate Public Debt

Download or read book Top-Management Incentives and the Pricing of Corporate Public Debt written by Hernan Ortiz-Molina and published by . This book was released on 2005 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article examines managerial ownership structure and at-issue yield spreads on corporate bonds. There is a positive relation between managerial ownership and borrowing costs, and this relation is weaker at higher levels of ownership. In addition, managerial stock options have a larger effect on yield spreads than stock ownership. These effects exist after controlling for firm and bond characteristics, and are robust to endogeneity and sample selection concerns. The evidence suggests that rational bondholders use the information about a firm's future risk choices contained in managerial incentives structures when pricing new debt issues, and that lenders anticipate higher risk-taking incentives from managerial stock options than from equity ownership.