CEO overconfidence and corporate debt maturity

Ronghong Huang, Kelvin Jui Keng Tan and Robert Faff

Journal of Corporate Finance, 2016, vol. 36, issue C, 93-110

Abstract: This paper extends our knowledge of corporate debt maturity structure by examining whether and to what extent overconfident CEOs affect maturity decisions. Consistent with a demand side story, we find that firms with overconfident CEOs tend to adopt a shorter debt maturity structure by using a higher proportion of short-term debt (due within 12months). This behavior of overconfident CEOs is not deterred by the high liquidity risk associated with such a financing strategy. Our demand side explanation remains robust even after considering six possible alternative drivers including a competing supply side explanation (in which creditors are reluctant to extend long-term debt to overconfident CEOs).

Keywords: Overconfidence; Debt maturity; Liquidity risk; Cost of debt (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (87)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:36:y:2016:i:c:p:93-110

DOI: 10.1016/j.jcorpfin.2015.10.009

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