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The Effect of Executive Compensation on Credit Default Swap Spread
Gadjah Mada International Journal of Business Pub Date : 2019-04-22 , DOI: 10.22146/gamaijb.32246
Meizaroh Meizaroh , Masripah Masripah

Investors have been trying to formulate the optimum composition of executives’ compensation which will incentivize the executives to perform better and act in the shareholders’ best interests. This study aims to find empirical evidence about the impact of executive compensation on the default risk with the Credit Default Swap (CDS) spread as the proxy, using panel data to test the research model, which combines the analysis of cross-section and time series data. The study is conducted based on 1,416 observations of 177 U.S. companies from 2008-2015. The data are mainly collected from Datastream, Compustat, CRSP, and the US SEC’s EDGAR database. The current study provides a contribution by suggesting that executives’ compensation will trigger risk-taking behavior. The results of this study reveal, firstly, both equity-based compensation and debt-like compensation induce risk-taking behavior by the executives. Secondly, the correlation between both the form of the compensation and the CDS spread is weakened in a high information asymmetry environment. Lastly, this study finds that a CFO’s compensation has more influence on the CDS spread, compared to the other board executives, but this condition only occurs when the compensation is awarded in the form of debt-like compensation. To improve the generalization of the results, a further study may consider expanding the sample into several countries.

中文翻译:

高管薪酬对信用违约掉期利差的影响

投资者一直在试图制定高管薪酬的最佳构成,这将激励高管表现更好,并为股东的最大利益行事。这项研究旨在寻找经验证据,以高管薪酬对信用违约互换(CDS)价差为代表的违约风险产生影响,并使用面板数据测试研究模型,该模型结合了对横截面和时间序列的分析数据。该研究基于2008年至2015年对177家美国公司的1,416项观察结果。数据主要从Datastream,Compustat,CRSP和美国SEC的EDGAR数据库中收集。本研究通过暗示高管的薪酬将引发冒险行为提供了贡献。这项研究的结果首先揭示了 基于股权的薪酬和类似债务的薪酬都会引起高管们的冒险行为。其次,在高度信息不对称的环境中,补偿形式与CDS扩散之间的相关性被削弱。最后,该研究发现,与其他董事会高管相比,CFO的薪酬对CDS利差有更大的影响,但是这种情况仅在以类似于债务的薪酬形式授予薪酬时才会发生。为了提高结果的通用性,可能需要进行进一步的研究,以将样本扩展到多个国家。这项研究发现,与其他董事会高管相比,CFO的薪酬对CDS利差有更大的影响,但是这种情况仅在以类似于债务的薪酬形式授予薪酬时才会发生。为了提高结果的通用性,可能需要进行进一步的研究,以将样本扩展到多个国家。这项研究发现,与其他董事会高管相比,CFO的薪酬对CDS利差有更大的影响,但是这种情况仅在以类似于债务的薪酬形式授予薪酬时才会发生。为了提高结果的通用性,可能需要进行进一步的研究,以将样本扩展到多个国家。
更新日期:2019-04-22
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