CEO overconfidence and debt maturity structure

This thesis extends the study of debt maturity structure to incorporate executive irrationality by examining how overconfident CEOs affect debt maturity decisions. As overconfident CEOs overestimate the probability of future success, we build a model showing that they mistakenly believe that short-term debt can enhance shareholder value. We further argue that this effect should be most pronounced in low-leveraged firms, where the increase in financial distress costs associated with short-term debt is lower. Using a sample of 2148 firm-year observations, we provide strong empirical evidences for both of the hypotheses in the US market. Our results are robust to different debt maturity measurements and alternative interpretations. This study also sheds light on the debt maturity decision-making process within a firm. Surprisingly, we find that CFOs have little influence over the debt maturity decision