Securitization of corporate assets and executive compensation
(2013) Journal of Corporate Finance — Vol. 21, p. 235-251 (2013)
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- Abstract
- We examine the effect of corporate asset-backed securitization on managerial compensation. We find that CEO compensation increases after securitization of corporate assets, which is consistent with two distinct theoretical views: (1) asset-backed securitization improves the efficiency of performance-based compensation as corporate performance becomes a better signal of managerial effort and (2) securitization of corporate assets mitigates liquidity constraints so that firms can make more efficient investments. We find that securitization primarily affects short-term accounting components (bonuses) and less equity-based components of the CEO's performance-based compensation. Further investigation reveals support for the second view of liquidity but not the first view of moral hazard. The results are robust to controlling for both possible self-selection biases associated with the decision to rely on asset-backed securitization as a means of external financing and simultaneity between executive compensation and financial decisions (securitization and leverage).
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Citations
Riachi, I., & Schwienbacher, A. (2013). Securitization of corporate assets and executive compensation. Journal of Corporate Finance, 21, 235-251. https://doi.org/10.1016/j.jcorpfin.2013.02.005 (Original work published 2013)