Journal article
Generalist CEOs and Credit Ratings
Contemporary accounting research, Vol.38(2), pp.1009-1036
06/01/2021
DOI: 10.1111/1911-3846.12662
Abstract
A recent trend is that firms prefer to hire generalist CEOs with transferable skills (across firms or industries) over hiring specialist CEOs, but the consequences of this trend are unclear. In this study, we examine whether credit rating agencies consider a CEO's general skills as a credit risk factor when assessing an entity's overall creditworthiness. We predict and find that generalist CEOs are associated with lower credit ratings, suggesting that the presence of generalist CEOs is a significant credit rating factor. We also find that generalist CEOs are likely to take on more risks, which leads to more volatile performance ex post, and our path analyses confirm default risk is a significant mediator between credit ratings and CEOs' general skills. Our results hold in the presence of additional controls (e.g., CEO characteristics and corporate governance), when applying different fixed-effect models and different matching methods, and for a subsample with forced CEO turnover. We also find that the negative relationship is attenuated for R&D-intensive firms and firms in competitive industries. Last, we provide evidence that firms with generalist CEOs face higher borrowing costs, such as bond yields and syndicated loan spreads. Overall, our results contribute to a growing literature on the costs and benefits of hiring generalist CEOs, by providing a full picture of why hiring a generalist CEO may benefit shareholders but also cause misalignments with bondholders' interests.
Details
- Title: Subtitle
- Generalist CEOs and Credit Ratings
- Creators
- Zhiming Ma - Peking UniversityLufei Ruan - San Francisco State UniversityDanye Wang - New York UniversityHaiyan Zhang - Tsinghua University
- Resource Type
- Journal article
- Publication Details
- Contemporary accounting research, Vol.38(2), pp.1009-1036
- Publisher
- Wiley
- DOI
- 10.1111/1911-3846.12662
- ISSN
- 0823-9150
- eISSN
- 1911-3846
- Number of pages
- 28
- Language
- English
- Date published
- 06/01/2021
- Academic Unit
- Accounting
- Record Identifier
- 9984380402802771
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