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Stay home, stay safe: CEO hometown identity and default risk

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  • Liu, Xinghe
  • Zhong, Weifeng
  • Chen, Jing

Abstract

Motivated by the understudied role of CEO hometown identity in the credit market, our study, grounded in place identity theory, examines whether CEO hometown identity lowers or raises firms’ default risk. Our results, based on a sample of listed Chinese firms from 2008 to 2020, show that CEO hometown identity significantly curbs default risk; this finding holds after a battery of robustness tests that address endogeneity concerns. Further analyses reveal that this effect is realized through hometown CEOs’ reputation concern and capabilities to alleviate financial constraints. Overall, our study highlights the positive role of CEO hometown identity from debtholders’ perspectives and offers valuable practical implications on how to control default risk.

Suggested Citation

  • Liu, Xinghe & Zhong, Weifeng & Chen, Jing, 2023. "Stay home, stay safe: CEO hometown identity and default risk," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323005639
    DOI: 10.1016/j.frl.2023.104191
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    1. Huang, Xue & Wang, Zhibin, 2024. "Does minority shareholder activism impede corporate default risk? Evidence from China," Finance Research Letters, Elsevier, vol. 61(C).

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