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Does top managers’ experience affect firms’ capital structure?

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  • Matemilola, B.T.
  • Bany-Ariffin, A.N.
  • Azman-Saini, W.N.W.
  • Nassir, Annuar Md

Abstract

Recently, the importance of traditional firm-specific determinants of capital structure has been challenged. The paper uses the trade-off theory to investigate the managerial experience of top managers as a determinant of capital structure. The paper applies system-generalized method of moments (GMM) which corrects endogeneity problem. Our results reveal that top managers’ experience is positively related to book value measures of capital structure. As top managers’ (CEOs) experience increases, both the book total debt and long-term debt ratios increase. Our results are robust using both the market total debt and long-term debt ratios. Based on the findings, the results suggest that top managers’ experience is a potential determinant of firms’ capital structure. The findings also suggest that experienced top managers maximize the benefits of debt interest tax-shield; top managers can increase firm value.

Suggested Citation

  • Matemilola, B.T. & Bany-Ariffin, A.N. & Azman-Saini, W.N.W. & Nassir, Annuar Md, 2018. "Does top managers’ experience affect firms’ capital structure?," Research in International Business and Finance, Elsevier, vol. 45(C), pages 488-498.
    • Handle: RePEc:eee:riibaf:v:45:y:2018:i:c:p:488-498
    DOI: 10.1016/j.ribaf.2017.07.184
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    Cited by:

    1. Irene Wei Kiong Ting & Imen Tebourbi & Wen-Min Lu & Qian Long Kweh, 2021. "The effects of managerial ability on firm performance and the mediating role of capital structure: evidence from Taiwan," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-23, December.
    2. Jing Du & Hongyue Wu & Ruoyu Jin, 2019. "Capital Structure of Public–Private Partnership Projects: A Sustainability Perspective," Sustainability, MDPI, vol. 11(13), pages 1-25, June.
    3. Qianwei Ying & Hazrat Hassan & Habib Ahmad, 2019. "The Role of a Manager’s Intangible Capabilities in Resource Acquisition and Sustainable Competitive Performance," Sustainability, MDPI, vol. 11(2), pages 1-20, January.
    4. Cappa, Francesco & Cetrini, Giorgio & Oriani, Raffaele, 2020. "The impact of corporate strategy on capital structure: evidence from Italian listed firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 379-385.

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    More about this item

    Keywords

    Capital structure; Managerial experience; Trade-off theory; Upper-echelons theory; System GMM;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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