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    CEO tenure and cost of debt

    Owusu, Andrews, Kwabi, Frank, Ezeani, Ernest ORCID logoORCID: https://orcid.org/0000-0003-0401-9000 and Owusu-Mensah, Ruth (2022) CEO tenure and cost of debt. Review of Quantitative Finance and Accounting, 59 (2). pp. 507-544. ISSN 0924-865X

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    Abstract

    In this study, we investigate the relationship between CEO tenure and cost of debt. Using a sample of the FTSE All-Share Index firms listed on the London Stock Exchange for the period 2009 to 2018 and the ordinary least squares regression (OLS) estimation method, we find that cost of debt is higher for firms with CEOs in their early tenure in office than those in their later tenure in office. Further analysis shows that board independence attributes including (1) the proportion of independent directors on the board, (2) full (100 per cent) independent audit committee members, and (3) a lead independent director representation on the board interact with CEO early tenure in office to reduce cost of debt due to the board’s effective monitoring ability when the CEO is new and risk-seeking. Our study extends CEO tenure and corporate outcomes in general and in particular CEO risk-taking incentives and cost of debt literature, and has important implications for firms seeking to raise finance from the debt market when their CEO is new as well as identifying the control mechanisms that they need to put in place to lower the cost of debt.

    Item Type: Article
    Peer-reviewed: Yes
    Date Deposited: 13 Jun 2022 08:56
    Publisher: Springer Verlag
    Additional Information: This version of the article has been accepted for publication, after peer review (when applicable) and is subject to Springer Nature’s AM terms of use, but is not the Version of Record and does not reflect post-acceptance improvements, or any corrections. The Version of Record is available online at: http://dx.doi.org/10.1007/s11156-022-01050-2
    Divisions: Faculties > Business and Law
    Subject terms: Social Sciences, Business, Finance, Business & Economics, CEO tenure, Cost of debt, Board independence, RESEARCH-AND-DEVELOPMENT, CORPORATE GOVERNANCE, GENDER DIVERSITY, HORIZON PROBLEM, AGENCY COSTS, INCENTIVES, MANAGEMENT, PERFORMANCE, FIRM, COMPENSATION, 01 Mathematical Sciences, 15 Commerce, Management, Tourism and Services, Finance
    URI: https://e-space.mmu.ac.uk/id/eprint/629869
    DOI: https://doi.org/10.1007/s11156-022-01050-2
    ISSN 0924-865X
    e-ISSN 1573-7179

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