The relationship between the amount of executive compensation and the size of the firm has long been a disputed area of economics. Baumol (1959) was among the first to observe that firm size and executive compensation appear to be positively correlated. This view was further supported by the...

Since Jensen and Meckling [1976] first introduced the concept of an agency cost of debt, most research on the agency cost of debt has centered on who bears these costs. Jensen and Meckling's original contention was that if bondholders have rational expectations, then the owner‐manager should...