Does CDS trading affect risk-taking incentives in managerial compensation?*

Chen, Jie, Leung, Woon Sau, Song, Wei and Avino, Davide (2023) Does CDS trading affect risk-taking incentives in managerial compensation?*. JOURNAL OF BANKING & FINANCE, 151. p. 105485.

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Abstract

We find that managers receive more risk-taking incentives in their compensation packages once their firms are referenced by credit default swap (CDS) trading, particularly when institutional ownership is high and when firms are in financial distress. These findings provide suggestive evidence that boards offer pay packages that encourage greater risk taking to take advantage of the reduced creditor monitoring after CDS introduction. Further, we show that the onset of CDS trading attenuates the effect of vega on leverage, consistent with the threat of exacting creditors restraining managerial risk appetite.

Item Type:	Article
Additional Information:	Source info: Journal of Banking and Finance, Forthcoming
Uncontrolled Keywords:	Credit default swaps, Executive compensation, Risk taking, Leverage
Depositing User:	Symplectic Admin
Date Deposited:	02 Apr 2019 14:20
Last Modified:	17 Jun 2023 12:19
DOI:	10.1016/j.jbankfin.2019.01.004
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3030941