| Summary: | The current thesis analyzes the relation between the main types of CEOs’ compensation and the corporate aggregate cost of debt for Standard and Poor’s 500 non-financial constituents between 2010-2016. Pay compensation includes inside debt and equity compensations, as well as salaries and cash bonus. As expected, I find that debt-based payoffs exert a negative impact on cost of debt through a set of robustness checks, by improving the CEO-debtholders alignment. This relation is driven by pension benefits plans, meaning that this payoff type is in line with other non-secured instruments of corporate debt. Pensions represent, on average, 21.5% of CEO total compensation. Further, my findings show that the negative impact of inside debt mechanisms is stronger when firms’ leverage ratio is higher. Surprisingly, contrary to agency theory, I find that equity-based payoffs help to reduce financing costs, being this relation driven by options granted, while stocks present an insignificant impact. The same behavior is observed by cash bonus, which has a significant negative impact on the corporate financing costs, though it represents a tiny weight of CEO total compensation (1.18%). After analyzing the compensation trends in the last decade, it is observed that pensions and equity-based remunerations display an inverse behavior in the post financial crisis period. It suggests that according to the economic and financial context, firms tend to adjust the remunerations paid to their CEOs to maximize the trade-off between risk and financing costs, since the financial market participants seem to care about how CEOs are compensated.
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