Download This PaperCEO Overconfidence and the Choice of Debt Issuance
69 Pages Posted: 28 May 2020 Last revised: 26 Feb 2024
Date Written: February 2, 2024
Abstract
This paper examines how chief executive officer (CEO) overconfidence affects firms’ choice of corporate debt issuance. We find that firms with overconfident CEOs tend to issue more private debt, especially bank loans, than public bonds compared with firms with nonoverconfident CEOs. The effect of CEO overconfidence is more pronounced when default spreads are wide, when gross domestic product growth is slow, during recessions, and among firms that face high distress and cash flow risk. Furthermore, the relationship between CEO overconfidence and bank loan issuance depends on collateralization; however, our main finding is not driven by debt maturity. To alleviate endogeneity concerns, we investigate matched samples and a subsample with exogenous CEO turnover events and find supportive and statistically stronger results.
Keywords: Debt issuance, Debt structure, Private debt, Bank loans, Bonds, CEO overconfidence
JEL Classification: G32, G41
Suggested Citation: Suggested Citation
Li Ge
Monash Business School ( email )
Menzies Building, 21 Chancellors Walk
Clayton, Victoria 3168
Australia
+61 399032123 (Phone)
Taher Jamil (Contact Author)
Monash University - Monash Business School ( email )
900 Dandenong Road
Caulfield East
Melbourne, Victoria 3145
Australia