Liquidation threat: Behavior of CEO entrenchment

Chien Chiang Lee; Chih Wei Wang

doi:10.1016/j.frl.2022.102949

Liquidation threat: Behavior of CEO entrenchment

Chien Chiang Lee, Chih Wei Wang

Department of Finance

Research output: Contribution to journal › Article › peer-review

8 Scopus citations

Abstract

This study investigated the effect of CEO entrenchment on a firm's debt maturity choice. We examine US firms using the 2006–2017 sample period and find that entrenched managers choose debt with longer maturity financing to avoid early liquidation. Additionally, we detect a possible channel between entrenchment and debt maturity using shareholder-initiated proposals. Finally, firms with high (low) informational opacity (credit quality) will force entrenched managers to extend their debt maturity. We provide useful policy implications for shareholders and investors and new insights into CEO entrenchment, debt maturity, and shareholder-initiated proposals.

Original language	English
Article number	102949
Journal	Finance Research Letters
Volume	47
DOIs	https://doi.org/10.1016/j.frl.2022.102949
State	Published - Jun 2022

Keywords

Agency theory
CEO entrenchment
Debt maturity
Shareholder-initiated proposal

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title = "Liquidation threat: Behavior of CEO entrenchment",

abstract = "This study investigated the effect of CEO entrenchment on a firm's debt maturity choice. We examine US firms using the 2006–2017 sample period and find that entrenched managers choose debt with longer maturity financing to avoid early liquidation. Additionally, we detect a possible channel between entrenchment and debt maturity using shareholder-initiated proposals. Finally, firms with high (low) informational opacity (credit quality) will force entrenched managers to extend their debt maturity. We provide useful policy implications for shareholders and investors and new insights into CEO entrenchment, debt maturity, and shareholder-initiated proposals.",

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AB - This study investigated the effect of CEO entrenchment on a firm's debt maturity choice. We examine US firms using the 2006–2017 sample period and find that entrenched managers choose debt with longer maturity financing to avoid early liquidation. Additionally, we detect a possible channel between entrenchment and debt maturity using shareholder-initiated proposals. Finally, firms with high (low) informational opacity (credit quality) will force entrenched managers to extend their debt maturity. We provide useful policy implications for shareholders and investors and new insights into CEO entrenchment, debt maturity, and shareholder-initiated proposals.

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KW - Debt maturity

KW - Shareholder-initiated proposal

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JO - Finance Research Letters

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Liquidation threat: Behavior of CEO entrenchment

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Keywords

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