Abstract

http://ssrn.com/abstract=1392836
 
 

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Behavioral Consistency in Corporate Finance: CEO Personal and Corporate Leverage


Henrik Cronqvist


China Europe International Business School (CEIBS)

Anil K. Makhija


Ohio State University (OSU) - Department of Finance

Scott E. Yonker


Indiana University - Kelley School of Business - Department of Finance

March 11, 2011

Fisher College of Business Working Paper No. 2009-03-04
Robert Day School of Economics and Finance Research Paper No. 2009-05
Charles A. Dice Center Working Paper No. 2009-4

Abstract:     
We find that firms behave consistently with how their CEOs behave personally in the context of leverage choices. Analyzing data on CEOs' leverage in their most recent primary home purchases, we find a positive, economically relevant, robust relation between corporate and personal leverage in the cross-section and when examining CEO turnovers. The results are consistent with an endogenous matching of CEOs to firms based on preferences, as well as with CEOs imprinting their personal preferences on the firms they manage, particularly when governance is weaker. Besides enhancing our understanding of the determinants of corporate capital structures, the broader contribution of the paper is to show that CEOs' personal behavior can, in part, explain corporate financial behavior of the firms they manage.

Number of Pages in PDF File: 51

Keywords: Corporate finance, behavioral consistency theory, CEO personal leverage, corporate leverage

JEL Classification: G32; G34

working papers series


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Date posted: April 24, 2009 ; Last revised: May 14, 2014

Suggested Citation

Cronqvist, Henrik and Makhija, Anil K. and Yonker, Scott E., Behavioral Consistency in Corporate Finance: CEO Personal and Corporate Leverage (March 11, 2011). Fisher College of Business Working Paper No. 2009-03-04; Robert Day School of Economics and Finance Research Paper No. 2009-05; Charles A. Dice Center Working Paper No. 2009-4 . Available at SSRN: http://ssrn.com/abstract=1392836 or http://dx.doi.org/10.2139/ssrn.1392836

Contact Information

Henrik Cronqvist
China Europe International Business School (CEIBS) ( email )
699 Hongfeng Road, Pudong
Shanghai, 201206
China
+86 21-2890-5653 (Phone)
HOME PAGE: http://sites.google.com/site/henrikcronqvist/
Anil K. Makhija (Contact Author)
Ohio State University (OSU) - Department of Finance ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-1899 (Phone)

Scott E. Yonker
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States

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