CEO Overconfidence and Corporate Debt Maturity

47 Pages Posted: 18 Aug 2013 Last revised: 20 Nov 2015

See all articles by Ronghong Huang

Ronghong Huang

University of Queensland - Business School

Kelvin Jui Keng Tan

University of Queensland - Business School; Financial Research Network (FIRN)

Robert W. Faff

University of Queensland

Date Written: October 29, 2015

Abstract

This paper extends our knowledge of corporate debt maturity structure by examining whether and to what extent overconfident CEOs affect maturity decisions. Consistent with a demand side story, we find that firms with overconfident CEOs tend to adopt a shorter debt maturity structure by using a higher proportion of short-term debt (due within 12 months). This behavior of overconfident CEOs is not deterred by the high liquidity risk associated with such a financing strategy. Our demand side explanation remains robust even after considering six possible alternative drivers including a competing supply side explanation (in which creditors are reluctant to extend long-term debt to overconfident CEOs).

Keywords: Overconfidence, Debt Maturity, Leverage, Cost of Debt

JEL Classification: G32

Suggested Citation

Huang, Ronghong and Tan, Kelvin Jui Keng and Faff, Robert W., CEO Overconfidence and Corporate Debt Maturity (October 29, 2015). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2311530 or http://dx.doi.org/10.2139/ssrn.2311530

Ronghong Huang

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Kelvin Jui Keng Tan (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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