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CEO Bonus Pay and Firm Credit Risk

CEO Bonus Pay and Firm Credit Risk

Hsin-Hui Chiu, Eva Wagner
Copyright: © 2020 |Volume: 9 |Issue: 1 |Pages: 19
ISSN: 2160-9624|EISSN: 2160-9632|EISBN13: 9781799800798|DOI: 10.4018/IJRCM.2020010101
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MLA

Chiu, Hsin-Hui, and Eva Wagner. "CEO Bonus Pay and Firm Credit Risk." IJRCM vol.9, no.1 2020: pp.1-19. http://doi.org/10.4018/IJRCM.2020010101

APA

Chiu, H. & Wagner, E. (2020). CEO Bonus Pay and Firm Credit Risk. International Journal of Risk and Contingency Management (IJRCM), 9(1), 1-19. http://doi.org/10.4018/IJRCM.2020010101

Chicago

Chiu, Hsin-Hui, and Eva Wagner. "CEO Bonus Pay and Firm Credit Risk," International Journal of Risk and Contingency Management (IJRCM) 9, no.1: 1-19. http://doi.org/10.4018/IJRCM.2020010101

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Abstract

This article examines the association between the bonus component of managerial compensation and the impacts on a firm's credit risk using data from the U.S. The empirical findings suggest that bonus compensation could potentially play a role in mitigating the agency costs of debt and restraining the CEO's risk-taking behavior, as bonus pay is significantly associated with lower credit risk in a broad sample across various industries. Cash compensation including salary and bonuses, however, have different impacts on credit risk. Bonus compensation does not add to credit risk as suggested in the financial press, but firms should differentiate impacts of bonus and salary pay on firm risk when designing executives' compensation package.

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