CEO’s culture and firms’ leverage decisions
CEO’s culture and firms’ leverage decisions
Debt mitigates agency problems between managers and stockholders by reducing free cash flows, yet why managers voluntarily adopt debt discipline remains unclear. This paper examines how CEOs’ managerial traits, shaped by national culture, influence leverage decisions. Analysing 3,338 CEOs from 41 nationalities in 2,280 US firms in the Bloomberg 3000 index (from 2007-2024), we find cultural values impact CEOs' perceptions of debt's costs/benefits. High-mastery CEOs reduce debt regardless of current leverage, while highly embedded CEOs inadvertently pursue target capital structures. A non-U.S. CEO sample shows cultural values are portable. Our findings are robust to sensitivity and endogeneity tests.
Mishra, Tapas
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Ranadeva, Jayasekera
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Chandrasena, Supun
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Uddin, Gazi Salah
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Dai, Sijia
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Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Ranadeva, Jayasekera
c7e89d93-07cf-4dcf-ac31-1679271b91cf
Chandrasena, Supun
38d69f9e-3ed1-45f3-b83f-bb57c0e0d294
Uddin, Gazi Salah
1fb91726-92eb-4441-8a40-b5dee36201f9
Dai, Sijia
22263d3d-5fb6-455e-ac41-6adbb73ab2d6
Mishra, Tapas, Ranadeva, Jayasekera, Chandrasena, Supun, Uddin, Gazi Salah and Dai, Sijia
(2025)
CEO’s culture and firms’ leverage decisions.
European Financial Management.
(In Press)
Abstract
Debt mitigates agency problems between managers and stockholders by reducing free cash flows, yet why managers voluntarily adopt debt discipline remains unclear. This paper examines how CEOs’ managerial traits, shaped by national culture, influence leverage decisions. Analysing 3,338 CEOs from 41 nationalities in 2,280 US firms in the Bloomberg 3000 index (from 2007-2024), we find cultural values impact CEOs' perceptions of debt's costs/benefits. High-mastery CEOs reduce debt regardless of current leverage, while highly embedded CEOs inadvertently pursue target capital structures. A non-U.S. CEO sample shows cultural values are portable. Our findings are robust to sensitivity and endogeneity tests.
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Accepted/In Press date: 5 March 2025
Identifiers
Local EPrints ID: 499763
URI: http://eprints.soton.ac.uk/id/eprint/499763
ISSN: 1354-7798
PURE UUID: b095673f-d6be-4089-90a4-ad468c357333
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Date deposited: 03 Apr 2025 16:40
Last modified: 04 Apr 2025 01:47
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Contributors
Author:
Jayasekera Ranadeva
Author:
Supun Chandrasena
Author:
Gazi Salah Uddin
Author:
Sijia Dai
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