CEO experience and corporate financing decisions: Evidence from a natural experiment in China

Ying Hao, Yuxiu Huang, Xuegang Cui, Qiang Liu and Yuwen Zhang

China Economic Review, 2021, vol. 70, issue C

Abstract: Using the unique setting in China's economic transition and market reform, we investigate whether CEOs' experience regarding an economic boom affect corporate financing decisions. Economic booming, as a result of China's reform and open policy since 1978, affects individual risk preferences and decision behavior for those who grew up during the reform process. We find that Reform-and-Opening CEOs, who experience the reform and open-up era early in life, implement more aggressive capital structure policies and maintain higher leverage compared to Planned Economy CEOs. Furthermore, we determine that Reform-and-Opening CEOs tend to conduct debt issuance more frequently to cover financing needs as they can better deal with the liquidity risk of debt financing and confront the pressures arising from frequent monitoring by the debt markets. Using the stagewise regression, we find a cumulative effect of early growth experience. We also use the common trend test and placebo tests to deal with the concern that Reform-and-Opening CEOs pursue significantly more aggressive financial policies relevant to the systematic differences. Additional tests rule out the possibility that our results are driven by industry competition, state ownership, and educational ideology.

Keywords: Early growth experiences; Corporate financing decisions; Prosperous era (search for similar items in EconPapers)
JEL-codes: G30 G34 J16 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1043951X21001218
Full text for ScienceDirect subscribers only

Related works:
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:eee:chieco:v:70:y:2021:i:c:s1043951x21001218

DOI: 10.1016/j.chieco.2021.101703

Access Statistics for this article

China Economic Review is currently edited by B.M. Fleisher, K. X. D. Huang, M.E. Lovely, Y. Wen, X. Zhang and X. Zhu

More articles in China Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().