CEO Age and Capital Structure Dynamics: The Moderating Effect of Overconfidence and Tenure

Ernest Ezeani, Bilal Bilal and Fulgence Samuel

International Journal of Finance & Economics, 2025, vol. 30, issue 3, 3092-3118

Abstract: The Upper Echelons theory suggests that managerial characteristics will likely influence their financial decisions. Consistent with this theory, we examine CEO age's impact on Chinese firms' capital structure dynamics. We also investigate the moderating effects of overconfidence and tenure on the relationship between CEO age and capital structure. Using 18,235 firm‐year observations from Chinese listed firms, we document a positive relationship between CEO age and leverage. The results show that the CEOs' age‐overconfidence and age‐tenure relationship have an inverse relationship with leverage. Particularly, we find that CEO overconfidence and tenure impact market leverage more than book leverage. Our sensitivity analysis indicates that young CEOs use less debt, consistent with the market‐leaning hypothesis. We also find a positive relationship between CEO age and leverage in state‐owned enterprises. Our results are robust for decomposition analysis, selection bias test and endogeneity.

Date: 2025
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