Managerial Overconfidence and Debt Maturity_EJF_Accepted_paper.pdf (711.04 kB)

Time-varying managerial overconfidence and corporate debt maturity structure

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journal contribution
posted on 16.12.2016, 11:12 by Ali Ataullah, Andrew VivianAndrew Vivian, Bin Xu
We examine the impact of managerial overconfidence on corporate debt maturity. We build upon the argument that managerial overconfidence is likely to mitigate the underinvestment problem, which is often the major concern for long-term debt investors. Within this context, we hypothesise that managerial overconfidence increases debt maturity. Our empirical evidence, based on time-varying measures of overconfidence derived from computational linguistic analysis and directors’ dealings in their own companies’ shares, supports this hypothesis. Specifically, we find that the changes in both first person singular pronouns and optimistic tone are positively related to the change in debt maturity. Moreover, we find that the insider trading-based overconfidence of CEO, who is most likely to influence investment decision and thus the underinvestment problem, has a stronger impact on debt maturity than the overconfidence of other directors (e.g. CFO). Overall, our study provides initial evidence for a positive overconfidence-debt maturity relation via overconfidence mitigating the agency cost of long-term debt.

History

School

  • Business and Economics

Department

  • Business

Published in

The European Journal of Finance

Volume

24

Issue

2

Pages

157 - 181

Citation

ATAULLAH, A., VIVIAN, A. and XU, B., 2017. Time-varying managerial overconfidence and corporate debt maturity structure. The European Journal of Finance, 24 (2), pp.157-181.

Publisher

© Taylor & Francis (Routledge)

Version

AM (Accepted Manuscript)

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Acceptance date

03/12/2016

Publication date

2017-01-08

Notes

This is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance on 8 January 2017, available online: http://www.tandfonline.com/10.1080/1351847X.2016.1274266.

ISSN

1466-4364

Language

en