Social security and the interactions between aggregate and idiosyncratic risk : [Version 9 Juli 2014]

  • We develop a model of managerial compensation structure and asset risk choice. The model provides predictions about how inside debt features affect the relation between credit spreads and compensation components. First, inside debt reduces credit spreads only if it is unsecured. Second, inside debt exerts important indirect effects on the role of equity incentives: When inside debt is large and unsecured, equity incentives increase credit spreads; When inside debt is small or secured, this effect is weakened or reversed. We test our model on a sample of U.S. public firms with traded CDS contracts, finding evidence supportive of our predictions. To alleviate endogeneity concerns, we also show that our results are robust to using an instrumental variable approach.

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Metadaten
Author:Daniel Harenberg, Alexander LudwigORCiDGND
URN:urn:nbn:de:hebis:30:3-344526
URL:http://ssrn.com/abstract=2464430
DOI:https://doi.org/10.2139/ssrn.2464430
Parent Title (German):SAFE working paper series ; No. 59
Series (Serial Number):SAFE working paper (59)
Publisher:SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2014
Year of first Publication:2014
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2014/07/14
Tag:Business Cycle; Compensation Structure; Credit Spread; Inside Debt; Risk-Taking
Issue:Version 9 Juli 2014
Page Number:74
HeBIS-PPN:34892884X
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht