kaal:claim:2097160-036

Against the critique that long-term debt in pay does not deter short-run risky bets because expected short-term gains exceed the discounted value of the debt, adding early-trigger contingent convertible bonds changes managers' incentives by forcing them to weigh the effects of triggering events rather than only the debt to equity mix of their portfolio.

Source quote, verbatim

portion of executives' compensation packages could change managers' incentives. Executives would no longer simply focus on the debt versus equity portion of their portfolio; they would also consider the effects of triggering events.237

From

Wulf A. Kaal, Contingent Capital in Executive Compensation (2012), VI.A Contingent Capital as Inside Debt, p. 59
https://ssrn.com/abstract=2097160 · source PDF

Cite as

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

Holds when

early trigger attached to a substantial portion of the executive's debt holdings

Classification

mechanismsupport: arguedrisk-and-incentivescontingent-capital

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