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CEO Turnover, Information Uncertainty, and Debt Contracting

Author

Listed:
  • Saiying Deng

    (Southern Illinois University, Carbondale, Illinois, USA)

  • Vincent J. Intintoli

    (Clemson University, South Carolina, USA)

  • Andrew Zhang

    (The University of Nevada Las Vegas, Paradise, Nevada, USA)

Abstract

CEO turnovers are important corporate events that can lead to significant changes within the firm. We find that CEO departures are associated with a subsequent increase in bank loan financing. The negative effect that CEO departures have on borrowing costs is largely driven by forced CEO turnovers. Following such departures, firms pay higher loan spreads, see an increase in covenants, and are more likely to be subject to collateral requirements, when compared to matched non-turnover and voluntary turnover firms. Evidence suggests that asset substitution and changes in accounting information quality help to explain the observed worsened terms following forced dismissals. On the other hand, more traditional voluntary departures are unrelated to changes in price and non-price loan terms.

Suggested Citation

  • Saiying Deng & Vincent J. Intintoli & Andrew Zhang, 2019. "CEO Turnover, Information Uncertainty, and Debt Contracting," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 1-54, June.
    • Handle: RePEc:wsi:qjfxxx:v:09:y:2019:i:02:n:s2010139219500010
    DOI: 10.1142/S2010139219500010
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    Cited by:

    1. Braga-Alves, Marcus V. & Ismailescu, Iuliana & Sen, Kaustav, 2022. "Powerful CEOs and their legacy: Evidence from credit risk around CEO turnovers," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 345-358.
    2. Qin, Bo & Yang, Lu, 2022. "CSR contracting and performance-induced CEO turnover," Journal of Corporate Finance, Elsevier, vol. 73(C).

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