
No-Fly Zone in the Loan Office: How CEOs’ Risky Hobbies Affect Credit Stakeholders’ Evaluation of Firms
<jats:p> The extant research has often examined the work-related experiences of corporate executives, but their off-the-job activities could be just as insightful. This study employs a novel proxy for the risky hobbies of chief executive officers (CEOs)—CEOs’ hobby of piloting a private aircraft—and investigates its effect on credit stakeholders’ evaluation of the firms led by the CEOs as reflected in bank loan contracting. Using a longitudinal data set on CEOs of large United States-listed firms across multiple industries between 1993 and 2010, we obtain strong evidence that bank loans to firms steered by CEOs who fly private jets as a hobby tend to incur a higher cost of debt, to be secured, to have more covenants, and to be syndicated. These effects are mainly driven by banks, which perceive such firms as having a higher default risk. These relationships become stronger when the CEO is more important to the firm and/or can exercise stronger control over decision making. Supplemented by field interviews, our results are also robust to various endogeneity checks using different experimental designs, the Heckman two-stage model, a propensity score-matching approach, a difference-in-differences test, and the impact threshold of confounding variables. /jats:p
The final published version can be found at https://doi.org/10.1287/orsc.2021.1443
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Work Title | No-Fly Zone in the Loan Office: How CEOs’ Risky Hobbies Affect Credit Stakeholders’ Evaluation of Firms |
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License | In Copyright (Rights Reserved) |
Work Type | Article |
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Publication Date | March 9, 2021 |
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Deposited | January 13, 2022 |
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