Title
Share-pledging and the cost of debt
Document Type
Article
Publication Date
2021
Abstract
We examine how corporate insiders pledging their equity stakes to collateralise personal loans influences firm cost of debt. Pledging enables managers to diversify personal holdings, potentially increasing risk-taking incentives. However, exposure to contingent risks creates potentially stronger risk-reducing incentives. Using hand-collected data with OLS, difference-in-differences, and instrumental variables models, we find significant decreases in yield spreads associated with executive share-pledging. Reductions in spreads surrounding share-pledge disclosures suggest investors update their risk assessment to reflect pledging managers’ risk-taking incentives. Consistent with risk-reducing incentives, firms with share-pledging executives subsequently reduce leverage.
Publication Title
Accounting & Finance
Repository Citation
Puleo, Michael R.; McDonald, Michael; and Kozlowski, Steven E., "Share-pledging and the cost of debt" (2021). Business Faculty Publications. 247.
https://digitalcommons.fairfield.edu/business-facultypubs/247
Published Citation
Puleo, Michael, Michael McDonald, and Steven Kozlowski. "Share‐pledging and the cost of debt." Accounting & Finance 61, no. 1 (2021): 1047-1079. https://doi.org/10.1111/acfi.12603
DOI
10.1111/acfi.12603
Peer Reviewed
Comments
Copyright 2020 Accounting and Finance Association of Australia and New Zealand.
A link to full text has been provided for authorized subscribers.