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

Research output: Contribution to journalArticle (Academic Journal)

Original languageEnglish
Pages (from-to)292-313
Number of pages22
JournalJournal of Corporate Finance
Early online date11 Nov 2017
DateAccepted/In press - 9 Nov 2017
DateE-pub ahead of print - 11 Nov 2017
DatePublished (current) - 1 Feb 2018


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.

    Research areas

  • Executive compensation, Financial distress risk, Creditor monitoring

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    Rights statement: This is the author accepted manuscript (AAM). The final published version (version of record) is available online via Elsevier at . Please refer to any applicable terms of use of the publisher.

    Accepted author manuscript, 959 KB, PDF document

    Licence: CC BY-NC-ND


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