Executive compensation and capital structure

Document Type

Conference Proceeding

Publication Date



We examine the relation between the incentive power of executive compensation and capital structure decision. Our theoretical model shows that executive stock options and restricted stocks provide positive incentives for CEOs to boost stock price, and that executive compensation composed of both cash and equity-based components motivate CEOs to pursue more aggressive capital structure policy. Our empirical analysis confirms the prediction of our theoretical model that executive compensation provides a strong incentive for CEOs to choose high firm leverage. Furthermore, our empirical results also suggest that firms with extant high debt ratios are more likely to offer CEO compensation with low incentive power.

Publisher's Statement

© Financial Management Association International Publisher's version of record: http://www.fma.org/NY/Papers/Execomp_FMA2010.pdf

Publication Title

2010 FMA Annual Meeting Program