We examine the effect of liability protection on the compensation of directors and on takeover outcomes. Consistent with the hypothesis that directors require additional compensation if they bear liability, we find that director compensation is higher for firms that provide less liability...

We model how a cash flow risk exposure is associated with higher bond yield spreads even if the factor is not priced in bond returns. Our model predicts that the absolute values of cash flow exposures are priced in yields. Additionally, we show how yields can provide a test for whether a factor...

Are all covenants equally effective at reducing the bondholder-shareholder conflict? Examining the most frequently used bond covenants, we document that four out of 24 restrictions are associated with significantly higher bankruptcy risk. The use of these Default Indicating covenants can be...

Research suggests that firms can use either debt or dividends as a commitment device to mitigate the free cash flow problem. We hypothesize that firms which face limitations on debt may use increased dividend payments as a second-best bonding device. Limitations on debt are implicit in state...

Upon examining the language used in recent SEC filings, we find that severance agreements are often paid whether or not the CEO leaves the firm due to a change in control. We hypothesize that since severance agreements compensate CEOs in the event of termination, CEOs with these agreements will...