Abandon ship: inside debt and risk-taking incentives in bad times
- We develop a model that endogenizes the manager's choice of firm risk and of inside debt investment strategy. Our model delivers two predictions. First, managers have an incentive to reduce the correlation between inside debt and company stock in bad times. Second, managers that reduce such a correlation take on more risk in bad times. Using a sample of U.S. public firms, we provide evidence consistent with the model's predictions. Our results suggest that the weaker link between inside debt and company stock in bad times does not translate into a mitigation of debt-equity conflicts.
| Author: | Domenico Rocco Cambrea, Stefano Colonnello, Giuliano Curatola, Giulia Fantini |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-425351 |
| URL: | https://ssrn.com/abstract=2884600 |
| Parent Title (English): | SAFE working paper series ; No. 160 |
| Series (Serial Number): | SAFE working paper (160) |
| Publisher: | SAFE |
| Place of publication: | Frankfurt am Main |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2016 |
| Year of first Publication: | 2016 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2017/01/10 |
| Tag: | Corporate Distress; Executive Compensation; Inside Debt |
| Issue: | This Draft: December 13, 2016, First Draft: June 8, 2016 |
| Page Number: | 40 |
| HeBIS-PPN: | 399274294 |
| 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): |  Deutsches Urheberrecht |
