Financial leverage does not distort investment decisions if executives are paid to maximize total firm value rather than equity value. Existing models of this idea imply that stock-based incentives should be negatively related to firm leverage, a prediction that has little empirical support. We...

Various theoretical models show that managerial compensation schemes can reduce the distortionary effects of financial leverage. There is mixed evidence as to whether highly levered firms offer less stock-based compensation, a common prediction of such models. Both the theoretical and empirical...

Purpose - The purpose of this study is to present theory and empirical evidence on whether changes in leverage are systematically associated with changes in the CEO's risk incentives over time. Design/methodology/approach - A model is developed to explain the dynamic relationship between...

Purpose – The purpose of this study is to present theory and empirical evidence on whether changes in leverage are systematically associated with changes in the CEO's risk incentives over time. Design/methodology/approach – A model is developed to explain the dynamic relationship between...