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Credit Ratings and Capital Structure: New Evidence from Overconfident CFOs

Research output: Contribution to conference › Paper › peer-review

  • Shee-Yee Khoo
    Bangor Business School
  • Huong Vu
    University of Aberdeen
  • Panagiotis Andrikopoulos
    Coventry University
  • Patrycja Klusak
    University of East AngliaBennett Institute for Public Policy, University of Cambridge
For the first time we investigate the impact of credit rating changes on the financing decisions of overconfident CFOs. We find that CFO overconfidence significantly increases the sensitivity of net debt issuances to the rating changes, particularly when firms have no access to low-risk debt. Specifically, we establish that speculative-grade firms with overconfident CFOs reduce net debt issuance following rating changes (i.e., upgrades and downgrades). Our results hold after controlling for CEO bias. Furthermore, we document that CEO overconfidence has explanatory power on firm financing policies as it generates the potential multiplier effect on debt conservatism, as well as on investment return.
Original languageEnglish
Publication statusPublished - Sept 2022
EventThe BAFA FMI SIG and Northern Area Group Annual Conference 2022 - University of York, York, United Kingdom
Duration: 14 Sept 2022 → 15 Sept 2022

Conference

ConferenceThe BAFA FMI SIG and Northern Area Group Annual Conference 2022
Country/TerritoryUnited Kingdom
CityYork
Period14/09/22 → 15/09/22
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