Initial compensation contracts for new executives and financial distress risk: an empirical investigation of UK firms

Chen, Jie ORCID: https://orcid.org/0000-0002-4076-7121, De Cesari, Amedeo, Hill, Paula and Ozkan, Neslihan 2018. Initial compensation contracts for new executives and financial distress risk: an empirical investigation of UK firms. Journal of Corporate Finance 48 , pp. 292-313. 10.1016/j.jcorpfin.2017.11.002

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Abstract

This paper analyses the effect of financial distress risk on the initial compensation contracts of new executives in the UK, where credit markets are more concentrated than in the US. We find that financial distress risk has a negative and statistically significant impact on the level of cash-based compensation and total compensation of executives, who are newly hired from either outside or inside the firm. This negative impact is accentuated in firms with a high fraction of bank debt, suggesting that banks, as creditors, provide monitoring and influence initial executive compensation packages in firms with high financial distress risk. Additionally, we find that financial distress risk has a negative and significant impact on the fraction of equity-based compensation for both externally and internally appointed executives.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HG Finance
Additional Information:	Released with a Creative Commons Attribution Non-Commercial No Derivatives License (CC BY-NC-ND)
Publisher:	Elsevier
ISSN:	0929-1199
Date of First Compliant Deposit:	24 November 2017
Date of Acceptance:	8 November 2017
Last Modified:	30 Nov 2024 03:45
URI:	https://orca.cardiff.ac.uk/id/eprint/106635

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