Midair Refueling for Sensation Seeking? Pilot CEOs and Corporate Debt Contracting

55 Pages Posted: 25 Sep 2020

See all articles by Steven Freund

Steven Freund

University of Massachusetts Lowell - Department of Finance

Tunde Kovacs

University of Massachusetts Lowell

Nam Nguyen

University of Texas Rio Grande Valley

Hieu V. Phan

University of Massachusetts Lowell

Date Written: September 11, 2020

Abstract

We examine the relation between chief executive officer (CEO) sensation seeking, which captures the desire for varied, novel, and complex personal sensations and experiences, and corporate debt contracting. Using pilot certificates as a proxy for the personality trait of sensation seeking, we find that firms with pilot CEOs use longer maturity debt financing even when long-term debt is more costly than short-term debt. Our findings are robust to controlling for the endogenous matching between firms and CEOs. Our evidence indicates that CEOs with sensation-seeking personality traits prefer long-term debt financing to avoid the liquidity risk associated with short-term debt financing that may hamper other corporate activities motivated by their sensation seeking.

Keywords: CEO Personality, Sensation Seeking, Debt Contracting, Corporate Debt Maturity, Cost of Capital, Liquidity Risk

JEL Classification: G32, G34

Suggested Citation

Freund, Steven and Kovacs, Tunde and Nguyen, Nam and Phan, Hieu V., Midair Refueling for Sensation Seeking? Pilot CEOs and Corporate Debt Contracting (September 11, 2020). Available at SSRN: https://ssrn.com/abstract=3690767 or http://dx.doi.org/10.2139/ssrn.3690767

Steven Freund

University of Massachusetts Lowell - Department of Finance ( email )

Lowell, MA 01854
United States

Tunde Kovacs

University of Massachusetts Lowell ( email )

1 University Ave
Lowell, MA 01854
United States

Nam Nguyen

University of Texas Rio Grande Valley ( email )

1201 W. University Drive
Edinburg, TX 78541
United States

Hieu V. Phan (Contact Author)

University of Massachusetts Lowell ( email )

72 University Avenue
Lowell, MA 01854
United States

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