CEO Social Capital and the Agency Cost of Debt
Presentation
Overview
Overview
Description
Contrary to the findings of prior research that focuses on private loans and bank debt, we find that
greater CEO social capital increases a firm’s cost of public debt. This effect is more pronounced for
speculative bonds, for firms in financial distress, for firms with weak governance, and is robust to tests
for endogeneity. CEO innate attributes, such as gender, age, and tenure, moderate social capital effects.
Examining the channel, we show that social capital is associated with greater CEO risk taking and with
a reduced use of restrictive covenants, which in turn increase the firm’s cost of debt.
