CEO’s Inside Debt and Dynamics of Capital Structure

A widely-held view in financial economics is that CEOs holding a non-diversified wealth portfolio tied to the firm are likely to be more risk-averse when making corporate decisions than what diversified shareholders would prefer. To reduce this divergence in attitude toward risk between CEOs and shareholders, equity-based compensation such as stock and stock option grants that offer payoff structures similar to what shareholders receive is often used in the CEOs compensation package. The purpose is to align the interests of CEOs with that of shareholders, and lead to corporate decisions consistent with shareholders’ interests.

In recent years, there has been … Read more

Do SEC Comment Letters Provide Useful Information?

To ensure compliance with disclosure and accounting requirements, the SEC periodically reviews reporting companies’ filings, including the Form 10-K.  While the SEC is required to review the filings of every reporting company at least once every three years, it may (and does) choose to review some companies more frequently.  For example, according to the SEC’s annual reports, the SEC has reviewed an increasing percentage of companies each year since 2006, with 52 percent of registered companies being reviewed in fiscal year 2013.

As described further on the SEC’s “Filing Review Process” website, the review does not guarantee whether … Read more