How Management Risk Affects Corporate Debt

Yihui Pan, Tracy Yue Wang and Michael Weisbach
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Tracy Yue Wang: University of Minnesota

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Management risk, which reflects uncertainty about the management's value added, is an important yet unexplored determinant of a firm's default risk and debt pricing. CDS spreads, loan spreads and bond yield spreads all increase at the time of management turnover, when management risk is highest, and decline over the first three years of CEO and CFO tenure, regardless of the reason for the turnover. These effects all vary with the ex ante uncertainty about the new management. Understanding the effects of management risk on corporate liabilities has a number of implications for the pricing of liabilities and corporate financial management.

JEL-codes: G32 G34 M12 M51 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-rmg
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: How Management Risk Affects Corporate Debt (2018)
Working Paper: How Management Risk Affects Corporate Debt (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2016-06

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