Premium
Managers, Owners, and The Pricing of Risky Debt: An Empirical Analysis
Author(s) -
BAGNANI ELIZABETH STROCK,
MILONAS NIKOLAOS T.,
SAUNDERS ANTHONY,
TRAVLOS NICKOLAOS G.
Publication year - 1994
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1994.tb05148.x
Subject(s) - incentive , shareholder , debt , business , bond , corporate debt , monetary economics , economics , financial economics , corporate governance , microeconomics , finance
This article examines managerial ownership structure and return premia on corporate bonds. It is argued that when managerial ownership is low, an increase in managerial ownership increases management's incentives to increase stockholder wealth at the expense of bondholder wealth. When ownership increases more, however, it is argued that management becomes more risk averse, with incentives more closely aligned with bondholders. This study finds a positive relation between managerial ownership and bond return premia in the low to medium (5 to 25 percent) ownership range. There is also weak evidence for a nonpositive relation in the large (over 25 percent) ownership range.