CEO inside debt and investment-cash flow sensitivity

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14 Citations (Scopus)


This paper provides a new explanation for investment-cash flow sensitivity from the perspective of CEO inside debt holdings. We examine the effect of CEO pensions and deferred compensation (inside debt) on investment-cash flow sensitivity for a sample of U.S. manufacturing firms from 2006 to 2012. We find that the firms with higher relative CEO leverage ratios (CEO's debt/equity ratio scaled by the firm's debt/equity ratio) generate higher investment-cash flow sensitivity. Moreover, one standard deviation increase in the logarithm of the relative CEO leverage ratio enlarges investment-cash flow sensitivity by 50 per cent. This positive relationship still holds even after we take account of endogeneity and financial constraints.

Original languageEnglish
Pages (from-to)423-443
Number of pages21
JournalAccounting and Finance
Issue number2
Publication statusPublished - 1 Jun 2016
Externally publishedYes


  • deferred compensation
  • inside debt
  • investment-cash flow sensitivity
  • managerial risk aversion
  • pension


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