Criminals, Bankruptcy, and Cost of Debt

Review of Accounting Studies, Forthcoming

56 Pages Posted: 23 Apr 2021 Last revised: 27 May 2021

See all articles by Kasper Regenburg

Kasper Regenburg

Copenhagen Business School, Department of Accounting

Morten Nicklas Bigler Seitz

Copenhagen Business School, Department of Accounting

Date Written: April 21, 2021

Abstract

We examine whether criminal records of CEOs and rank-and-file employees are associated with firms’ likelihood of bankruptcy and whether lenders adjust their required cost of debt accordingly. We use a nationwide sample of private firms and criminal registers covering all firm employees. We find that the likelihood of bankruptcy is positively associated with the CEO’s criminal record and the proportion of employees with criminal records. We find some, though less robust, evidence that lenders price a firm’s loan higher when its CEO has a criminal record and when more of its employees have criminal records. The results suggest that the characteristics of firm employees represent a risk that, to some extent, is priced by lenders.

Keywords: Bankruptcy prediction, criminal records, human capital, cost of debt

JEL Classification: G32, G33, G41, M12, M41, M54

Suggested Citation

Regenburg, Kasper and Seitz, Morten Nicklas Bigler, Criminals, Bankruptcy, and Cost of Debt (April 21, 2021). Review of Accounting Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3831990 or http://dx.doi.org/10.2139/ssrn.3831990

Kasper Regenburg

Copenhagen Business School, Department of Accounting ( email )

Solbjerg Plads 3
Frederiksberg, Capital Region 2000
Denmark

Morten Nicklas Bigler Seitz (Contact Author)

Copenhagen Business School, Department of Accounting ( email )

Solbjerg Plads 3
Frederiksberg, Capital Region 2000
Denmark

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