I model the joint effects of debt, macroeconomic conditions, and cash flow cyclicality on risk-shifting behavior and managerial pay-for-performance sensitivity. I show that risk-shifting incentives rise during recessions and that the shareholders can eliminate such adverse incentives by reducing...

Understanding of business cycle phases has been the focus of researchers to mitigate negative impacts of business cycle on the organizations. Realigning fixed and variable pay in the pay structure helps organizations in maintaining proper leverage ratio for mitigating adverse impact of recession...