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The effect of CEO option compensation on the capital structure: a natural experiment

Tosun, Onur Kemal ORCID: 2016. The effect of CEO option compensation on the capital structure: a natural experiment. Financial Management 45 (4) , pp. 953-979. 10.1111/fima.12116

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Firms simultaneously choose both their capital and their executive compensation structure. Using the Internal Revenue Code 162(m) tax law as an exogenous shock to compensation structure in a natural experiment setting, I identify firm leverage changes as a result of chief executive officer (CEO) option compensation changes. The evidence provides strong support for debt agency theory. Firms appear to decrease leverage when CEOs are paid with more options and when CEO options become a higher percentage of future cash flows. The findings are robust to controlling for corporate governance and convertible debt.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Publisher: Wiley
ISSN: 0046-3892
Date of First Compliant Deposit: 2 May 2019
Last Modified: 07 Nov 2023 09:13

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