CEO Pay Duration and Corporate Debt Maturity Structure

Abstract

While recent studies show that long vesting periods in managerial compensation increase corporate investments, it may reshape the shareholder-debtholder conflict as shareholders have to split the gains with creditors. We find that firms with longer CEO pay durations use more short-maturity debts, which is consistent with that firms shorten debt maturity to mitigate the agency costs of debt. The effect is stronger in firms with more growth opportunities and financial constraints. We strengthen the identification by exploiting the compliance of a regulatory change (FAS 123-R) that is staggered quasi-randomly by firms’ fiscal-year-end months. Our paper provides evidence that the duration of executive compensation affects corporate financing decisions.