Inside Debt and the Design of Corporate Debt Contracts

  title={Inside Debt and the Design of Corporate Debt Contracts},
  author={Divya Anantharaman and Vivian W. Fang and Guojin Gong},
  journal={Management Science},
Agency theory posits that debt-like compensation (such as defined-benefit pensions and other deferred compensation) aligns managerial interests more closely with those of debtholders and reduces the agency cost of debt. Consistent with theory, we find that a higher CEO relative leverage, defined as the ratio of the CEO's inside leverage (debt-toequity compensation) to corporate leverage, is associated with lower cost of debt financing and fewer restrictive covenants, for a sample of private… CONTINUE READING
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