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    • If the manager channel dominates we

    2022-01-17

    If the manager channel dominates, we expect the increase in debt maturity of treated firms relative to control firms to be more evident in firms with weaker corporate governance where managers are less monitored and have more discretion in changing firm risks. We use the governance index (GINDEX) compiled by Gompers et al. (2003) to measure the corporate governance. We obtain the following hypothesis.
    Data and variables The question on how the drop in vega induced by FAS 123R affects corporate debt maturity can be better understood if we study the debt maturity in the incremental approach—the maturity of debt issues, since debt issues can respond and adjust quickly to the regulatory shock (Guedes and Opler, 1996; Datta et al., 2000; Denis and Mihov, 2003; Saretto and Tookes, 2013). We use Thomson One as our source to obtain the data on debt maturity structure of the bond and loan issues. We collect the CEO compensation and ownership data, such as salary, bonus, options, restricted stocks and long-term incentive awards, from ExecuComp database. The information about firm characteristics and stock return is from the Compustat and CRSP database. We choose the sample from fiscal year 2003 to fiscal year 2007. We define fiscal year 2005 as the beginning of the post-FAS 123R period. Similar to Ferri and Li (2018), we choose 2003 as the starting PRX-08066 australia in order to capture a period subsequent to the 2003 tax cut on individual dividend income, and 2007 as the last period to avoid the financial crisis period. Following the prior literature on debt maturity, e.g., Barclay and Smith (1995), Datta et al. (2005) and Brockman et al. (2010), we focus on industrial firms with industry classification (SIC) code between 2000 and 5999. In addition, we require all sample firms have at least 1 year of data in both the pre- and post-event periods, and drop observations with missing values of the variables in the baseline regression. In the end, our sample includes totally 402 unique firms and 1189 firm-year observations. The control sample includes firms that did not pay any options to their CEOs in 2003 and 2004, and firms that started expensing options using the fair value method in or prior to 2002 (McConnell et al., 2004). The treated sample includes other sample firms excluding these control firms. We have identified 308 firms in the treated group and 94 firms in the control group. As the incremental approach in Brockman et al. (2010), we construct the maturity of corporate debt by consolidating the debt issues sample into a firm-year format. We have two measures for debt maturity. Our first measure, LMAT, is computed as the logarithm of the equal-weighted average maturity of debt issues including both bonds and loans for a firm in a year. Our second measure, LMAT_WT, is computed as the logarithm of the issue size-weighted average. The CEO compensation vega and delta are computed following the methodology of Guay (1999), Core and Guay (2002), Coles et al. (2006) and Hayes et al. (2012). The vega is defined as the change in the value of CEO option compensation in response to a 0.01 increase in the annualized standard deviation of the firm's stock returns. It reflects the managerial risk-taking incentives. The delta is measured as the change in the value of CEO stock and option compensation due to a 1% change in the firm's stock price and reflects the pay-performance sensitivity. We compute the vega and delta for the CEO's total portfolio of current and outstanding prior grants of stocks and options (VEGA_P and DELTA_P). We also compute the vega and delta for the current year grants (VEGA_C and DELTA_C). A recent growing literature, e.g., Low (2009), Hayes et al. (2012), Gormley et al. (2013) and De Angelis et al. (2017), argues that the vega and delta of current grants are more appropriate if we study how compensation changes following a shock because current grants can be adjusted immediately. In carrageenan paper, when we test the effects of FAS 123R on risk-taking incentives, we will focus on the current grants.