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Inside Debt and Mergers and Acquisitions

Published online by Cambridge University Press:  08 April 2015

Hieu V. Phan
Hieu V. Phan*
Affiliation:
hieu_phan@uml.edu, Manning School of Business, University of Massachusetts Lowell, 1 University Ave, Lowell, MA 01854.
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Abstract

I empirically investigate the relation between chief executive officer (CEO) inside debt holdings and mergers and acquisitions (M&As), and find evidence consistent with the agency theory’s prediction of a negative relation between CEO inside debt holdings and corporate risk taking. Further analysis shows that CEO inside debt holdings are positively correlated with M&A announcement abnormal bond returns and long-term operating performance, but negatively correlated with M&A announcement abnormal stock returns. Finally, I find evidence that acquirers restructure the postmerger composition of CEO compensation that mirrors their capital structure in order to alleviate incentives for wealth transfer from shareholders to bondholders or vice versa.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 49 , Issue 5-6 , December 2014 , pp. 1365 - 1401
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2015 

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