CEO overconfidence and corporate debt maturity

Ronghong Huang, Kelvin Jui Keng Tan, Robert W. Faff

Research output: Contribution to journalArticlepeer-review

38 Citations (Scopus)

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 12. months). 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).

Original languageEnglish
Pages (from-to)93-110
Number of pages18
JournalJournal of Corporate Finance
Volume36
Early online date6 Nov 2015
DOIs
Publication statusPublished - 1 Feb 2016

Keywords

  • cost of debt
  • debt maturity
  • liquidity risk
  • overconfidence

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