Affiliation:
1. Alvarez College of Business, Accounting The University of Texas at San Antonio San Antonio Texas USA
Abstract
AbstractWe examine the influence of CEOs’ equity and cash grants’ vesting provisions that are based on (i) accounting performance metrics prepared under US generally accepted principles (GAAP), (ii) non‐GAAP performance metrics and (iii) key performance indicators (KPIs) on debt contracts. We find that grants with vesting provisions based on GAAP metrics and KPIs lead to a lower cost of debt, a lower likelihood of collateral requirements and less restrictive covenant terms. In contrast, performance‐based grants with non‐GAAP vesting provisions lead to a higher cost of debt, a higher likelihood of collateral requirements and more restrictive covenant terms. Supplementary analyses reveal that our results are incremental to other debtholder‐friendly features in the CEO contracts, such as grants with debt‐related performance measures and CEOs’ inside debt holdings, and robust to alternative variable definitions and specifications. Overall, our results suggest that debtholders understand the differing incentives associated with GAAP, non‐GAAP and KPI‐based performance measures, and incorporate these differences into debt contracts.
Subject
Finance,Business, Management and Accounting (miscellaneous),Accounting
Cited by
1 articles.
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