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CEO overconfidence and corporate debt maturity

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

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 12months). 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).

Suggested Citation

  • Huang, Ronghong & Tan, Kelvin Jui Keng & Faff, Robert W., 2016. "CEO overconfidence and corporate debt maturity," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 93-110.
    • Handle: RePEc:eee:corfin:v:36:y:2016:i:c:p:93-110
    DOI: 10.1016/j.jcorpfin.2015.10.009
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    More about this item

    Keywords

    Overconfidence; Debt maturity; Liquidity risk; Cost of debt;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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