Do insider CEOs affect cost of debt? The moderating role of investor sentiment

Suham Cahyono

Accounting Research Journal, 2026, vol. 39, issue 3, 509-544

Abstract: PurposeThis study aims to examine how insider chief executive officer (CEO) appointments influence corporate borrowing costs and investigate whether investor sentiment moderates this relationship. Grounded in agency theory and information asymmetry perspectives, this study explores how capital market perceptions shape creditors’ risk assessments associated with insider leadership.Design/methodology/approachUsing a sample of 2,121 firm-year observations from publicly listed firms over the period 2012–2020, this study uses ordinary least squares regression with industry and year fixed effects. A range of robustness and endogeneity controls are implemented, including propensity score matching, Heckman selection correction and entropy balancing, to ensure the validity of the empirical findings.FindingsThe results indicate that firms led by insider CEOs are associated with higher borrowing costs, suggesting that creditors may perceive insider appointments as increasing agency risks or governance concerns. Importantly, investor sentiment moderates this relationship: optimistic market conditions mitigate the perceived risk associated with insider CEOs, while pessimistic sentiment amplifies debt pricing penalties. These findings highlight the role of market-wide psychological factors in shaping credit risk evaluation.Research limitations/implicationsThis study contributes to the literature on corporate governance, executive succession and debt contracting by demonstrating that investor sentiment serves as a contextual factor influencing how leadership characteristics are priced in credit markets. The findings offer insights applicable across different institutional environments where insider succession and capital market sentiment interact.Practical implicationsFor boards and creditors, the results emphasize the importance of considering both executive background and prevailing market sentiment when evaluating leadership transitions and financing decisions. Regulators may also benefit from understanding how governance signals are interpreted by market participants.Originality/valueThis research extends prior studies by integrating behavioral finance perspectives into the governance–cost of debt nexus and by highlighting the moderating role of investor sentiment in shaping creditor responses to insider CEO appointments.

Keywords: Insider CEO; Cost of debt; Governance; Investor sentiment (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eme:arjpps:arj-12-2024-0401

DOI: 10.1108/ARJ-12-2024-0401

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