Journal of Corporate Finance

Presentation on theme: "Journal of Corporate Finance"— Presentation transcript:

1 Journal of Corporate Finance
CEO overconfidence and corporate debt maturity Yue Xiaoting 04

2 Research Background & Significance
Current studies typically maintain the broad framework of “neoclassical” executive rationality, a behavioral finance perspective embracing the concept of overconfidence suggests alternative considerations that potentially offer important new insights. Accordingly, the primary objective of this study is to examine whether and to what extent the overconfidence of CEOs affects a firm's debt maturity decisions. 01

3 Hypothesis. All else being equal, overconfident managers prefer a shorter debt maturity structure when compared to non-overconfident managers. 01

4 Research design 01 02 03 04 点击添加标题 点击添加标题 点击添加标题 点击添加标题
Data Source the executives' stock and option holdings Execu Comp Financial and accounting information Compustat monthly stock prices CRSP Yields on long-term government bonds the St. Louis Federal Reserve Bank website.8 01 点击添加标题 02 点击添加标题 03 点击添加标题 点击添加标题 04 Their main sample period covers 2006 to 2012.

5 Research design 01 02 03 04 2、Variable definition 点击添加标题 点击添加标题 点击添加标题

6 Research design 01 点击添加标题 02 点击添加标题 03 点击添加标题 点击添加标题 04

7 Research design 01 02 03 04 Model specification and methods 点击添加标题
debt maturity and leverage are endogenous and jointly determined. To control for this endogeneity problem, they use IV-GMM regression that models leverage and debt maturity as jointly determined.

8 Empirical results 01 02 03 04 Table 1 点击添加标题 点击添加标题 点击添加标题 点击添加标题
Firm-level summary statistics

9 Empirical results 01 02 03 04 Table 1 点击添加标题 点击添加标题 点击添加标题 点击添加标题
Firm-level summary statistics

10 Empirical results 01 02 03 04 Table 2 点击添加标题 点击添加标题 点击添加标题 点击添加标题
CEO-level summary statistics

11 Empirical results 01 02 03 04 Table 2 点击添加标题 点击添加标题 点击添加标题 点击添加标题
CEO-level summary statistics

12 Empirical results 01 02 03 04 Table 3 点击添加标题 点击添加标题 点击添加标题 点击添加标题
Table 3 presents the second-stage IV-GMM regression results using ST1, ST2, ST3, ST4 and ST5 as the dependent variable , respectively .

13 Empirical results 01 02 03 04 Table 4 点击添加标题 点击添加标题 点击添加标题 点击添加标题
Longholder is only statistically and positively related to ST

14 Five alternative explanations
Five alternative explanations for the documented relation between short maturity and CEO overconfidence: (1) insider information; (2) risk tolerance; (3) past performance; (4) taxes and dividends; (5) board pressure . In summary, the analysis appears that overconfidence interpretation is most consistent with the observed late exercise behavior. 01 点击添加标题 02 点击添加标题 03 点击添加标题 点击添加标题 04

15 Conclusion In our simple model, overconfident CEOs believe that they have private information regarding the firm's future performance. Therefore, overconfident CEOs choose shorter debt to minimize perceived mispricing of their securities to “enhance” stockholder value. Furthermore, we show that overconfident CEOs are willing to accept short-term debt, despite the strongly held view that short-term debt is “an extremely powerful tool to monitor management” (Stulz, 2000). Taken together, our findings offer one possible explanation of why firms hire overconfident CEOs despite the concern that they might be value destroying in mergers and acquisitions (Malmendier and Tate, 2008; Roll, 1986). 01 点击添加标题 02 点击添加标题 03 点击添加标题 点击添加标题 04

16 Innovations our paper makes three primary contributions to the existing literature. First, it contributes to the literature on debt maturity structure at the individual decision-maker level, rather than at the industry or firm levels. Second, to the best of our knowledge, this is the first study to examine the channel through which overconfident CEOs execute the debt maturity structure decision through a novel method, distinguishing newly-contracted short-term debt from previously contracted longer-term debt. Third, our study helps further bridge the gap between behavioral finance and corporate financing decisions. We show that the effect of overconfidence is not only related to the choice (debt vs. equity) and level of financing (leverage), but also extends to the choice of maturity. 01 点击添加标题 02 点击添加标题 03 点击添加标题 点击添加标题 04

17 THANK YOU