Managerial compensation and the debt placement decision

Albring, Susan M.; Khurana, Inder K.; Nejadmalayeri, Ali; Pereira, Raynolde

doi:10.1016/j.jcorpfin.2011.08.003

Cited by 11 publications

(6 citation statements)

References 53 publications

(59 reference statements)

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“…On the contrary, age is positively related to debt specialization. This supports the empirical findings of Albring [70] and Lopez-Gracia [46], who stated that companies with a high risk of volatile earnings, growth opportunities, and expense ratios experience more agency-related issues and face high costs of financial distress. These factors also cause information asymmetry as investors and lenders cannot predict future earnings based on the publicly available information [45,65].…”

Section: Empirical Evidence For Core Factor Identificationsupporting

confidence: 88%

“…The organizations maintain stable cash flows and thus have fewer chances of bankruptcy [69]. The regulation also reduces the information asymmetries and agency conflicts between shareholders and debt holders [70] and can obtain loans from multiple sources. That is why it is posited that regulated organizations incline less towards debt specialization.…”

Section: Industrymentioning

confidence: 99%

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Core Predictors of Debt Specialization: A New Insight to Optimal Capital Structure

et al. 2021

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Debt structure composition is an essential topic of discussion for the management of capital structure decisions. Researchers made extensive efforts to understand the criteria for selecting debts, specifically, to know about the reasons for debt specialization, concealed in identifying its predictors. This question is essential not only for establishing the field of debt structure but also for the financial managers to design corporate financial strategy in a way that leads to attaining an optimal debt structure. Sophisticated financial modeling is applied to identify the core predictors of debt specialization, influencing the strategic choices of optimal debt structure to address this issue. Data were collected from 419 non-financial companies listed at the Karachi Stock Exchange from 2009 to 2015. This study has validated debt specialization by showing that short-term debts maintain their position over the years and remain the most popular type of loan among Pakistani firms. Further, it provides a comprehensive view of the cross-sectional differences among the firms involved in debt specialization by applying a holistic approach. Results show that small, growing, dividend-paying companies, having high expense and risk ratios, followed the debt specialization strategy. This strategy enables firms to reduce their agency conflicts, transaction costs, information asymmetry, risk management and building up their good market reputation. Conclusively, we have identified the gross profit margin, long-term debt to asset ratio, firm size, age, asset tangibility, and long-term industry debt to asset ratio as reliable and core predictors of debt specialization for sustainable business growth.

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Section: Empirical Evidence For Core Factor Identificationsupporting

confidence: 88%

Section: Industrymentioning

confidence: 99%

Core Predictors of Debt Specialization: A New Insight to Optimal Capital Structure

et al. 2021

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“…In this model a firm with existing assets in place valued as V0, has to realize a project with a given probability of success and to do so it has to acquire risky external financing (that is endogenously chosen). 1 If the project succeeds, the firm can pay the creditors the promised payment, if the 1 The assumption that financing choices are driven by the demand side is often adopted in studies on how executive compensation influences debt contracts (see, among others, Albring et al 2011;Brockman et al, 2010;Meneghetti, 2012). In the context of our analysis, this assumption has some credibility: it only implies that the firm influences debt concentration by deciding ex ante which type of debt to require in the market.…”

Section: Theoretical Backgroundmentioning

confidence: 99%

Does debt concentration depend on the risk-taking incentives in CEO compensation?

Castro

Keasey²,

Tapia

et al. 2020

Journal of Corporate Finance

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“…The interest coverage ratio determines the firm's ability to pay its debt obligation (Albring et al 2011;Geraschenko 2018). The high interest coverage ratio depicts that the company is in a better position to pay off its interest obligations, while a low ratio indicates high default risk.…”

Section: Debt Market Factorsmentioning

confidence: 99%

Debt Market Trends and Predictors of Specialization: An Analysis of Pakistani Corporate Sector

Khan

Qadeer

Mata

et al. 2021

JRFM

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Recently, debt structure research has started focusing on the strategic perspective of financing choices, particularly to understand the reasons for debt specialization (DS). This paper examines trends of specialization over time and industry by using a comprehensive dataset on types of debt employed by the public limited companies during 2009–2018. The objective of the current study is to analyze the effect of debt market conditions by identifying significant predictors of DS. Time-series and cross-sectional results confirm the existence of DS, which is further validated by the findings of the cluster analysis. The empirical results indicate that overall, 61% of the companies solely rely on a single type of debt, mostly on short-term obligations accompanied by long-term secured and other debts. Moreover, small, mature, rated, group-affiliated, and low-leverage companies incline more towards this strategy. Credit rating, debt maturity, financial and interest coverage ratios serve as the primary determinants of the debt market that are significantly associated with the measures of DS. The results contribute to the capital structure literature by specifying that financing choice has an important implication in deciding the debt structure composition of the organizations.

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Managerial compensation and the debt placement decision

Cited by 11 publications

References 53 publications

Core Predictors of Debt Specialization: A New Insight to Optimal Capital Structure

Core Predictors of Debt Specialization: A New Insight to Optimal Capital Structure

Does debt concentration depend on the risk-taking incentives in CEO compensation?

Debt Market Trends and Predictors of Specialization: An Analysis of Pakistani Corporate Sector

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