CEO Turnover, Information Uncertainty, and Debt Contracting
Quarterly Journal of Finance, Forthcoming
54 Pages Posted: 16 Jan 2016 Last revised: 21 Oct 2018
Date Written: October 18, 2018
CEO turnovers are important corporate events that can lead to significant changes within the firm. We find that CEO departures are associated with a subsequent increase in bank loan financing. The negative effect that CEO departures have on borrowing costs is largely driven by forced CEO turnovers. Following such departures, firms pay higher loan spreads, see an increase in covenants, and are more likely to be subject to collateral requirements, when compared to matched non-turnover and voluntary turnover firms. Evidence suggests that asset substitution and changes in accounting information quality helps to explain the observed worsened terms following forced dismissals. On the other hand, more traditional voluntary departures are unrelated to changes in price and non-price loan terms.
Keywords: CEO Turnover, Bank Loan Terms, Information Uncertainty, Forced Turnover
JEL Classification: G21, G32, M41
Suggested Citation: Suggested Citation