Business, Management and Accounting
7 years ago

CEO inside debt boosts firm's debt issuance and stock prices.

Journal of Corporate Finance
Executive compensation and corporate financing policies: Evidence from CEO inside debt
Steven Freund, Saira Latif, Hieu V. Phan

Paper Summary

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The study looked at how CEO inside debt affects a company's choice between borrowing money or selling stocks. They found that CEOs with more inside debt are more likely to choose debt financing and have a higher proportion of debt in their total financing. Also, having inside debt is linked to lower debt costs and a positive stock price reaction when issuing debt. This suggests that inside debt helps align the interests of managers and lenders, leading to better debt terms for companies.