No-Fly Zone in the Loan Office: How Chief Executive Officers' Risky Hobbies Affect Credit Stakeholders' Evaluation of Firms

• 成果类型: Article
• 署名作者: Ouyang, Bo; Tang, Yi; Wang, Chong; Zhou, Jian
• 署名单位: Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; University of Hong Kong; Hong Kong Polytechnic University; University of Hawaii System; University of Hawaii Manoa
• 刊物名称: ORGANIZATION SCIENCE
• ISSN/ISSBN: 1047-7039
• DOI: 10.1287/orsc.2021.1443
• 发表日期: 2022
• 页码: 414-430
• 关键词: pilot CEO; risky hobby; off-the-job activities; Stakeholder theory; upper echelons theory

摘要

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.