CEO Turnover and Debt Policy Change

47 Pages Posted: 24 Dec 2010

See all articles by Cathy Xuying Cao

Cathy Xuying Cao

University of Texas at Dallas - Department of Finance

David C. Mauer

University of North Carolina (UNC) at Charlotte

Date Written: December 22, 2010

Abstract

We empirically examine the influence of CEOs on corporate financial policy. We focus our analysis on significant changes in financial policy by focusing on firms that change their debt policy from zero leverage to positive leverage or from positive leverage to zero leverage at least once during their Compustat history. We find that CEO turnover, and in particular external CEO turnover (i.e., replacement of the CEO with someone from outside the firm) is a significant determinant of debt policy changes. Our results are robust after controlling for known determinants of capital structure, corporate governance, and potential endogeneity of CEO turnover. We find that the leverage of the replacement CEO’s former company tends to be consistent with the direction of the debt policy change. We also find that the frequency of CEO turnover is much less when the firm never changes its debt policy (i.e., is always levered or unlevered). Our evidence establishes that CEOs have a first-order influence on corporate financial policy.

Keywords: CEO turnover, debt policy, capital structure, corporate culture

JEL Classification: G32, G34, M14

Suggested Citation

Cao, Cathy Xuying and Mauer, David C., CEO Turnover and Debt Policy Change (December 22, 2010). Available at SSRN: https://ssrn.com/abstract=1729907 or http://dx.doi.org/10.2139/ssrn.1729907

Cathy Xuying Cao

University of Texas at Dallas - Department of Finance ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States
972-883-4898 (Phone)

David C. Mauer (Contact Author)

University of North Carolina (UNC) at Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
704-687-7707 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
252
Abstract Views
1,268
rank
130,380
PlumX Metrics