CEO Overconfidence and the Choice of Debt Issuance

49 Pages Posted: 28 May 2020 Last revised: 1 Feb 2021

See all articles by Li Ge

Li Ge

Monash University - Monash Business School

Taher Jamil

Monash University - Monash Business School

Jin Yu

Monash University -Department of Banking and Finance

Date Written: January 29, 2021

Abstract


This paper examines how CEO overconfidence affects firms’ choice of debt issuance. We find that firms with overconfident CEOs tend to issue more private debt (i.e., bank loans and non-bank loans) than public bonds compared with firms with non-overconfident CEOs. The effect of CEO overconfidence is more pronounced during periods with high default spread, low GDP growth, and NBER recessions and among firms with higher distress risks and cash flow risks. We also find that the positive association between CEO overconfidence and issuance of private debt 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, Private debts, Bonds, CEO overconfidence

JEL Classification: G32, G41

Suggested Citation

Ge, Li and Jamil, Taher and Yu, Jin, CEO Overconfidence and the Choice of Debt Issuance (January 29, 2021). Available at SSRN: https://ssrn.com/abstract=3570193 or http://dx.doi.org/10.2139/ssrn.3570193

Li Ge

Monash University - Monash Business School ( email )

Building H Level 3, 900 Dandenong Road
Caulfield East
Melbourne, Victoria 3145
Australia
+61 399032123 (Phone)

Taher Jamil (Contact Author)

Monash University - Monash Business School ( email )

900 Dandenong Road
Caulfield East
Melbourne, Victoria 3145
Australia

Jin Yu

Monash University -Department of Banking and Finance ( email )

Melbourne
Australia
+61 3 99034590 (Phone)

HOME PAGE: http://sites.google.com/site/jinyufinecon/

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