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The Role of Non-Managerial Inside Debt in Firm Risk and the Cost of Debt

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  • Linyan Wang
  • Xiaoxu Sui
  • Yun Feng
  • Huijuan Zhang
  • Bingda Zhang

Abstract

This study investigates the impact of non-managerial inside debt on managerial risk-taking decisions and the cost of debt. We propose a theoretical model demonstrating that non-managerial inside debt can reduce firm risk by influencing managers’ risk-taking decisions and that non-managerial inside debt is inversely related to the firm’s cost of debt. From the proposed model, we develop an empirical hypothesis that indicates the negative relationship between non-managerial inside debt and the cost of debt. We test the hypothesis empirically and find evidence to support the model. The paper adds a novel theoretical model to the literature that shows the significance of non-managerial inside debt in firm risk-taking and capital raising.

Suggested Citation

  • Linyan Wang & Xiaoxu Sui & Yun Feng & Huijuan Zhang & Bingda Zhang, 2023. "The Role of Non-Managerial Inside Debt in Firm Risk and the Cost of Debt," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 59(9), pages 3076-3093, July.
    • Handle: RePEc:mes:emfitr:v:59:y:2023:i:9:p:3076-3093
    DOI: 10.1080/1540496X.2023.2210717
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