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Behavioral Consistency in Corporate Finance: CEO Personal and Corporate LeverageHenrik CronqvistClaremont McKenna College - Robert Day School of Economics and Finance Anil K. MakhijaOhio State University (OSU) - Department of Finance Scott E. YonkerIndiana University Bloomington - 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 seriesDate posted: April 24, 2009 ; Last revised: March 13, 2011Suggested CitationContact Information
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