Criminals, bankruptcy, and cost of debt

Kasper Regenburg () and Morten Nicklas Bigler Seitz ()
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Kasper Regenburg: Copenhagen Business School
Morten Nicklas Bigler Seitz: Copenhagen Business School

Review of Accounting Studies, 2021, vol. 26, issue 3, No 6, 1004-1045

Abstract: 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 the firm’s CEO has a criminal record and when more of the 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; G32; G33; G41; M12; M41; M54 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11142-021-09608-6

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