Credit Risk Assessment and Executives' Legal Expertise

49 Pages Posted: 16 Sep 2021

See all articles by Mia Pham

Mia Pham

Massey University

Yulia Merkoulova

Monash Business School

Chris Veld

Monash University

Date Written: September 14, 2021


We study whether firms that are led by chief executive officers (CEOs) with a law degree (lawyer CEOs) have different credit ratings and costs of debt from other firms. Our sample consists of Standard & Poor’s 1500 firms from 1992 to 2015, 9.2% of which have lawyer CEOs. We find that these firms have better credit ratings compared to other firms. On average, their cost of debt is 6.76% lower than that of firms led by CEOs who lack a legal background. Our results are robust to different specifications, sampling methods, and controls, such as firm and CEO characteristics. We identify two channels for the process of translating CEO expertise into higher credit ratings. Lawyer CEOs are associated with a lower future volatility of stock returns and a reduction in information risk. The decreased business risk and better financial reporting are associated with 7% lower auditing fees for firms with lawyer CEOs.

Keywords: Credit ratings, CEOs, legal education, cost of capital, audit pricing

JEL Classification: G11; G17; G12

Suggested Citation

Pham, Mia and Merkoulova, Yulia and Veld, Chris, Credit Risk Assessment and Executives' Legal Expertise (September 14, 2021). Available at SSRN: or

Mia Pham

Massey University ( email )

Private Bag 11 222
Palmerston North, Manawatu 4442
New Zealand

Yulia Merkoulova

Monash Business School ( email )

Wellington Road
Clayton, Victoria 3168

Chris Veld (Contact Author)

Monash University ( email )

Building 11E
Clayton, Victoria 3800

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