Credit risk assessment and executives’ legal expertise

Mia Hang Pham (), Yulia Merkoulova () and Chris Veld
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Mia Hang Pham: Massey University
Yulia Merkoulova: Monash University

Review of Accounting Studies, 2023, vol. 28, issue 4, No 14, 2400 pages

Abstract: Abstract We study whether firms that are led by chief executive officers (CEOs) with law degrees (lawyer CEOs) have different credit ratings and costs of debt from other firms. Our sample consists of Standard & Poor’s 1500 firms from 1992 to 2020, 9.2% of which have lawyer CEOs. We find that these firms have better credit ratings, compared to other firms. On average, their cost of debt is 10% lower than that of firms led by CEOs without legal backgrounds. Our results are robust to different specifications, sampling methods, and controls, such as firm and CEO characteristics. We identify two ways that CEO expertise translates into higher credit ratings: lawyer CEOs are associated with a lower future volatility of stock returns and a reduction in information risk. The decreased business risk and better financial reporting are associated with 5% lower auditing fees for firms with lawyer CEOs.

Keywords: Credit ratings; CEOs; Legal education; Cost of capital; Audit pricing (search for similar items in EconPapers)
JEL-codes: G11 G12 G17 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11142-022-09699-9

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