# kaal:claim:2097160-032

**Claim.** The governance benefits of traditional inside debt, incentive optimization and reduced agency costs, all depend on the entity remaining solvent, and inside debt supplies no mechanism of its own to ensure that solvency.

**Type.** failure  **Support.** argued

**Holds when.**

- inside debt without a conversion feature, such as pensions and deferred compensation

**Source quote.**

> value and the associated governance benefits215 incentive optimization216 and reduction of agency costs217 depend on the solvency of the respective entity. Inside debt without a conversion feature provides no mechanism to ensure the solvency of the entity.

**From.** Wulf A. Kaal, *Contingent Capital in Executive Compensation* (2012), VI.A Contingent Capital as Inside Debt, page 55

**Cite as.** Wulf A. Kaal, Contingent Capital in Executive Compensation (2012). SSRN: https://ssrn.com/abstract=2097160

**Verify.** sha256 of source PDF `1e1f8aa246bce19f4658dbceb455c7c2a272aa5d63a9e9bdaa46a3a5a87680fc` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Kaal%20-%202012%20-%20Contingent%20Capital%20in%20Executive%20Compensation.pdf

**Failure mode.** Inside debt has no solvency preserving mechanism  (family: agency-cost-and-managerial-opportunism)

**Topics.** corporate-governance

**Keywords.** inside-debt, solvency, agency-cost, pension-compensation

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