IDEAS home Printed from https://ideas.repec.org/p/ecl/ohidic/2016-06.html

How Management Risk Affects Corporate Debt

Author

Listed:
  • Pan, Yihui

    (University of Utah)

  • Wang, Tracy Yue

    (University of Minnesota)

  • Weisbach, Michael S.

    (Ohio State University)

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.

Suggested Citation

  • Pan, Yihui & Wang, Tracy Yue & Weisbach, Michael S., 2016. "How Management Risk Affects Corporate Debt," Working Paper Series 2016-06, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2016-06
    as

    Download full text from publisher

    File URL: http://poseidon01.ssrn.com/delivery.php?ID=531083111122093067004126116115100110030015042050031004028030089000074112119023116024057022106062019059012068015108069064078092119060069077051127005018027120019012064040058057103003090098069019115126017114091101115125019064078100027013025067118003124126&EXT=pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chen, Tsung-Kang & Tseng, Yijie & Hung, Yu-Shun & Huang, Mei-Ling, 2023. "Management efficiency uncertainty and its implications for bondholders," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 73-92.
    2. Gareth Anderson & Saleem Bahaj & Matthieu Chavaz & Angus Foulis & Gabor Pinter, 2023. "Lending Relationships and the Collateral Channel," Review of Finance, European Finance Association, vol. 27(3), pages 851-887.
    3. Ismailescu, Iuliana & Col, Burcin, 2022. "Cross-border M&As and credit risk: Evidence from the CDS market," Journal of Empirical Finance, Elsevier, vol. 66(C), pages 51-73.
    4. Hyeongjun Kim & Hoon Cho & Doojin Ryu, 2022. "Corporate Bankruptcy Prediction Using Machine Learning Methodologies with a Focus on Sequential Data," Computational Economics, Springer;Society for Computational Economics, vol. 59(3), pages 1231-1249, March.
    5. Tan, Changchun & Mo, Lingyu & Wu, Xiaomeng & Zhou, Peng, 2024. "Fintech development and corporate credit risk: Evidence from an emerging market," International Review of Financial Analysis, Elsevier, vol. 92(C).
    6. Hoang Vu, Ngan & Dang, Ha V. & Nguyen, Hung T. & Pham, Mia Hang, 2025. "Upholding integrity: The influence of executives’ backgrounds on corporate information environment," Journal of Behavioral and Experimental Finance, Elsevier, vol. 46(C).
    7. Pham, Mia Hang, 2020. "In law we trust: Lawyer CEOs and stock liquidity," Journal of Financial Markets, Elsevier, vol. 50(C).
    8. Cai, Xiangshang & Gao, Yang & Wu, Zhiting & Yuan, Jiayi, 2024. "Chief executive officer marital status and corporate credit ratings," International Review of Financial Analysis, Elsevier, vol. 95(PA).
    9. Brian Akins & David De Angelis & Maclean Gaulin, 2020. "Debt Contracting on Management," Journal of Finance, American Finance Association, vol. 75(4), pages 2095-2137, August.
    10. Wang, Yangmei & Guo, Savannah (Yuanyuan), 2025. "How does the CEO horizon problem affect the cost of bank loans?," Advances in accounting, Elsevier, vol. 68(C).
    11. Dutton, Joseph & Lockwood, Matthew, 2017. "Ideas, institutions and interests in the politics of cross-border electricity interconnection: Greenlink, Britain and Ireland," Energy Policy, Elsevier, vol. 105(C), pages 375-385.
    12. Zhi Li & Lingling Wang & Karen Wruck, 2020. "Accounting‐Based Compensation and Debt Contracts," Contemporary Accounting Research, John Wiley & Sons, vol. 37(3), pages 1475-1511, September.
    13. Shang, Chenguang, 2021. "Dare to play with fire? Managerial ability and the use of short-term debt," Journal of Corporate Finance, Elsevier, vol. 70(C).
    14. Cao, June & Ee, Mong Shan & Hasan, Iftekhar & Huang, He, 2024. "Asymmetric reactions of abnormal audit fees jump to credit rating changes," The British Accounting Review, Elsevier, vol. 56(2).
    15. Benz, Andreas & Demerjian, Peter R. & Hoang, Daniel & Ruckes, Martin E., 2024. "Picking winners: Managerial ability and capital allocation," Working Paper Series in Economics 163, Karlsruhe Institute of Technology (KIT), Department of Economics and Management.
    16. Nguyen, Harvey & Pham, Mia Hang & Vu, Van Hoang, 2025. "Executives’ early-life experience and corporate debt contracting: Evidence from CEO military experience," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 103(C).
    17. Jeong‐Bon Kim & Jeff J. Wang & Eliza Xia Zhang, 2021. "Does real earnings smoothing reduce investors’ perceived risk?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(9-10), pages 1560-1595, October.
    18. Braga-Alves, Marcus V. & Ismailescu, Iuliana & Sen, Kaustav, 2022. "Powerful CEOs and their legacy: Evidence from credit risk around CEO turnovers," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 345-358.
    19. Wang, Yanyan & He, Xubiao, 2024. "Competence enhancement from interactive learning: Does attending conferences affect CEO turnover?," International Review of Economics & Finance, Elsevier, vol. 95(C).

    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecl:ohidic:2016-06. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/cdohsus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.