What Does CEOs' Personal Leverage Tell Us about Corporate Leverage?

Henrik Cronqvist, Anil K. Makhija and Scott E. Yonker
Additional contact information
Anil K. Makhija: Ohio State University
Scott E. Yonker: Ohio State University

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: We find that firms behave remarkably similarly to how their CEOs behave personally when it comes to leverage choices. We start our analysis by compiling a comprehensive sample of home purchases and financings among S&P 1,500 CEOs. Debt financing in a CEO's most recent home purchase is used as a revealed preference of the CEO's personal attitude towards debt. We find a robust positive relation between personal and corporate leverage. We also find that firms tend to hire CEOs with a similar personal attitude towards debt as the previous CEO. When the new and previous CEOs have different personal preferences, corporate leverage changes in the direction of the new CEO's personal leverage. These results support a model with endogenous matching of CEOs to firms. We also find that the positive relation between CEOs' personal leverage and corporate leverage is stronger in firms with poor governance, suggesting that CEOs imprint their personal preferences on the firms they manage when they are able to do so. These results suggest that heterogeneity in CEOs' personal attitudes towards debt partly explains differences in corporate capital structures, and suggest more generally that an analysis of CEOs' personalities and personal traits may provide important information about the financial policies of the firms they manage.

Date: 2009-07
New Economics Papers: this item is included in nep-bec
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.cob.ohio-state.edu/fin/dice/papers/2009/2009-4.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.cob.ohio-state.edu/fin/dice/papers/2009/2009-4.pdf [301 Moved Permanently]--> https://www.cob.ohio-state.edu/fin/dice/papers/2009/2009-4.pdf [301 Moved Permanently]--> https://fisher.osu.edu/fin/dice/papers/2009/2009-4.pdf)

Related works:
Working Paper: What Does CEOs’ Personal Leverage Tell Us About Corporate Leverage? (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2009-4

Access Statistics for this paper

More papers in Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().