CEO overconfidence and corporate debt maturity

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Huang, Ronghong and Tan, Kelvin Jui Keng and Faff, Robert W. (2016) CEO overconfidence and corporate debt maturity. Journal of Corporate Finance, 36. pp. 93-110. ISSN 0929-1199 (https://doi.org/10.1016/j.jcorpfin.2015.10.009)

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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).

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