Author
Hao Li
Other affiliations: Heriot-Watt University, University of Stirling
Bio: Hao Li is an academic researcher from Swansea University. The author has contributed to research in topics: Executive compensation & Pension. The author has an hindex of 3, co-authored 11 publications receiving 77 citations. Previous affiliations of Hao Li include Heriot-Watt University & University of Stirling.
Topics: Executive compensation, Pension, Debt, Cost of capital, Yield spread
Papers
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TL;DR: This paper examined how different components of executive compensation affect the cost of debt and found that debt-like and equity-like pay components have differing effects: an increase in defined benefit pensions is associated with lower bond yield spread, while higher share holdings lead to higher spreads.
Abstract: This study examines how different components of executive compensation affect the cost of debt. We find that debt-like and equity-like pay components have differing effects: an increase in defined benefit pensions is associated with lower bond yield spread, while higher share holdings lead to higher spreads. In addition, we find that stock options have a mixed impact on the cost of debt whereas cash bonus has no significant impact. Overall, our results indicate that corporate bondholders are fully aware of both risk-taking and risk-avoiding incentives created by various executive pay components
76 citations
TL;DR: The authors found that multinational companies use similar or lower leverage than domestic firms and are more likely to raise new equity capital than new debt, while internationalization leads to the use of more expensive capital from the domestic market at a cost to shareholders.
9 citations
TL;DR: In this article, the authors examined the relation between quantitative disclosure of CEO pay and the optimality of pay structure in terms of 1) level of pay, 2) pay-performance relationship, and 3) CEO-to-employee pay ratio.
7 citations
TL;DR: In this article, the authors investigated the relationship between inside debt and firm risk-taking by exploiting the change in the tax treatment of UK pensions following two pension amendments, and found that there is no causal relationship between insider debt and company risk taking.
Abstract: This paper provides new evidence on the relation between CEO inside debt and firm risk‐taking by exploiting the change in the tax treatment of UK pensions following two pension amendments The 2006 pension reform introduces the annual and lifetime allowance for UK pension schemes, significantly increasing income taxes associated with CEO inside debt The 2011 allowance cut, which substantially reduces the annual allowance introduced in 2006, further increases income taxes on inside debt We find that CEO inside debt, in the form of executive pensions declines after the 2006 reform while cash‐in‐lieu increases significantly This effect is more severe after the 2011 allowance cut than the 2006 pension reform UK firms appear to substitute away from pensions towards cash‐in‐lieu, where income taxes are less punishing If the association between CEO inside debt and firm risk‐taking is causal, we should observe a change of risk‐taking after the decline of inside debt Our results, which exploit the exogenous nature of the reforms, show that the decline of CEO pensions does not lead to any change in firm risk‐taking This result suggests that no causal relationship exists between CEO inside debt and firm risk‐taking Our results extend the inside debt literature, where empirical evidence is mainly documented in the US Contrary to findings in the US, our evidence suggests that the use of CEO inside debt is motivated to minimise income tax rather than a tool to moderate firm risk
6 citations
TL;DR: In this paper, the authors empirically examined the impact of managerial opportunism, influenced by pension compensation, on the research and development investments and concluded that executive compensation contracts need to be appropriately adjusted when managers approach retirement, implying that long-term debt-like compensation in the form of defined benefit pension can make the career horizon problem more severe.
5 citations
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999 citations
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TL;DR: In this article, the authors investigate the association between executive compensation and performance using a comprehensive set of corporate governance mechanisms within a three-stage least squares (3SLS) simultaneous equation framework.
Abstract: This paper investigates the association between executive compensation and performance. It uniquely utilizes a comprehensive set of corporate governance mechanisms within a three-stage least squares (3SLS) simultaneous equation framework. Results based on estimating a conventional single equation model indicate that the executive pay and performance sensitivity is relatively weak, whereas those based on estimating a 3SLS model generally suggest improved executive pay and performance sensitivity. Our findings highlight the need for future research to control for possible simultaneous interdependencies when estimating the executive pay and performance link. The findings are generally robust across a raft of econometric models that control for different types of endogeneities, executive pay and performance proxies.
102 citations
TL;DR: In this article, the authors investigated the association between executive compensation and performance using a three-stage least squares (3SLS) simultaneous equation framework and found that the executive pay and performance sensitivity is relatively weak.
Abstract: This paper investigates the association between executive compensation and performance. It uniquely utilises a comprehensive set of corporate governance mechanisms within a three-stage least squares (3SLS) simultaneous equation framework. Results based on estimating a conventional single equation model indicate that the executive pay and performance sensitivity is relatively weak, whereas those based on estimating a 3SLS model generally suggest improved executive pay and performance sensitivity. Our findings highlight the need for future research to control for possible simultaneous interdependencies when estimating the executive pay and performance link. The findings are generally robust across a raft of econometric models that control for different types of endogeneities, executive pay and performance proxies. Copyright © 2013 John Wiley & Sons, Ltd.
82 citations
Posted Content•
TL;DR: In this article, the sophistication of rating agencies in incorporating managerial risk-taking incentives into their credit risk evaluation was examined and the significance of credit ratings in the design of CEO compensation was evaluated.
Abstract: This study examines the sophistication of rating agencies in incorporating managerial risk-taking incentives into their credit risk evaluation. We measure risk-taking incentives using two proxies: the sensitivity of managerial wealth to stock return volatility (vega) and the sensitivity of managerial wealth to stock price (delta). We find that rating agencies impound managerial risk-taking incentives in their credit risk assessments. Assuming other things equal, a one standard deviation increase in vega (delta) will lead to an approximately one-notch (two-notch) rating downgrade. In addition, we evaluate the significance of credit ratings in the design of CEO compensation. Our findings suggest that rating-troubled firms will gear down managerial incentives of risk-seeking. In particular, other things equal, a rating downgrade to the lower edge of the investment category (i.e., BBB-) in the immediate prior year will bring about an approximately 51 percent reduction of vega incentive from options newly granted to the CEO in the current year. However, we find no evidence that firms’ rating concerns significantly affect delta.
72 citations
01 Jan 2009
TL;DR: In this paper, the effect of ownership structure and regulatory independence on the interaction between capital structure and regulated prices using a comprehensive panel data of publicly traded European utilities was studied, and the authors found that firms in their sample tend to have a higher leverage if they are privately controlled and regulated by an independent regulatory agency.
Abstract: We study the effect of ownership structure and regulatory independence on the interaction between capital structure and regulated prices using a comprehensive panel data of publicly traded European utilities. We find that firms in our sample tend to have a higher leverage if they are privately controlled and regulated by an independent regulatory agency. Moreover, the leverage of these firms has a positive and significant effect on their regulated prices, but not vice versa. Our results are consistent with the theory that privately controlled regulated firms use leverage strategically to obtain better regulatory outcomes.
67 citations