Disciplinary Role of Debt: Managerial Compensation & Capital Structure
SE35A.1
Disciplinary Role of Debt: Managerial Compensation & Capital Structure Yossef Spiegel, Elazar Berkovitch, Ronen Israel --- Tel-Aviv U, , ,
Interaction between capital structure and managerial compensation is investigated in an environment where complete contracts cannot be implemented and the market for corporate control is ineffective. We show that debt affects both the probability that a manager will be replaced (job security effect) and his wage if he is retained (wage bargaining effect). Consequently, debt may induce higher managerial effort...
