CEO Inside Debt and Costs of Bank Debt Financing

Abstract

This study examines the role of CEOs pensions and deferred

compensations by exploring their impacts on pricing and non-pricing

contract terms of bank loans. CEOs inside debt, defined as the sum of

defined benefit pensions and deferred compensations, pays fixed amounts

at periodic intervals. We find that higher inside debt holdings significantly

reduce both loan rate spreads and demands for collateral. We also find that

such effects are particularly pronounced under weak external governance

proxied by strong anti-takeover defenses. Overall, our results support the

idea that debt-like incentives for CEOs increase align the interests between

managers and creditors.