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

Jie Chen, Amedeo De Cesari, Paula Hill, Neslihan Ozkan*

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)

2 Citations (Scopus)
158 Downloads (Pure)

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.

Original languageEnglish
Pages (from-to)292-313
Number of pages22
JournalJournal of Corporate Finance
Volume48
Early online date11 Nov 2017
DOIs
Publication statusPublished - 1 Feb 2018

Structured keywords

  • AF Corporate Finance

Keywords

  • Executive compensation
  • Financial distress risk
  • Creditor monitoring

Fingerprint Dive into the research topics of 'Initial compensation contracts for new executives and financial distress risk: An empirical investigation of UK firms'. Together they form a unique fingerprint.

  • Profiles

    Cite this