Publication Type
Journal Article
Version
submittedVersion
Publication Date
10-2023
Abstract
Chief Executive Officer (CEO) contractual protection, in the forms of CEO employment agreements and CEO severance pay agreements, is prevalent among S&P 1500 firms. While prior research has examined the impact of these agreements on corporate decisions from shareholders’ perspective, there is little research on the impact from debt holders’ perspective. We find that, compared with other loans, loans issued by firms with CEO contractual protection on average contain more performance covenants and performance-pricing provisions. This effect increases with CEOs’ risk-taking incentives and opportunities, but it decreases with CEOs’ preference for and opportunity of enjoying a quiet life. Furthermore, for loans issued by firms with CEO contractual protection, debt holders include stricter covenants, charge a higher interest rate and use a more diffuse syndicate structure. Collectively, these results shed light on the impact of CEO contractual protection on debt contracting.
Keywords
CEO employment agreement, CEO severance pay agreement, debt contracting
Discipline
Accounting | Corporate Finance
Research Areas
Corporate Reporting and Disclosure
Publication
Journal of Business Finance and Accounting
Volume
50
Issue
9-10
First Page
1671
Last Page
1714
ISSN
0306-686X
Identifier
10.1111/jbfa.12664
Publisher
Wiley
Citation
CHEN, Xia; CHENG, Qiang; LO, Alvis K.; and WANG, Xin.
CEO contractual protection and debt contracting. (2023). Journal of Business Finance and Accounting. 50, (9-10), 1671-1714.
Available at: https://ink.library.smu.edu.sg/soa_research/1792
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1111/jbfa.12664