CEO Overconfidence and Corporate Debt Maturity
47 Pages Posted: 18 Aug 2013 Last revised: 20 Nov 2015
Date Written: October 29, 2015
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
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