CEO’s culture and firms’ leverage decisions

Supun Chandrasena; Sijia  Dai; Ranadeva Jayasekera; Tapas Mishra; Gazi Salah Uddin

doi:10.1111/eufm.12550

CEO’s culture and firms’ leverage decisions

Supun Chandrasena^*, Sijia Dai, Ranadeva Jayasekera, Tapas Mishra, Gazi Salah Uddin

^*Corresponding author for this work

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Abstract

Debt mitigates agency problems between managers and stockholders by reducing free cashflows; yet, why managers voluntarily adopt debt discipline remains unclear. This paper examines how chief executive officers' (CEOs') managerial traits, shaped by national culture, influence leverage decisions. Analysing 3338 CEOs from 41 nationalities in 2280 US firms in Bloomberg 3000 index (from 2007 to 2024), we find that cultural values impact CEOs' perceptions of debt's costs/benefits. High-mastery CEOs reduce debt regardless of current leverage, while highly embedded CEOs inadvertently pursue target capital structures. A non-US CEO sample shows that cultural values are portable. Our findings are robust to sensitivity and endogeneity tests.

Original language	English
Number of pages	37
Journal	European Financial Management
Early online date	05 Apr 2025
DOIs	https://doi.org/10.1111/eufm.12550
Publication status	Early online date - 05 Apr 2025

Keywords

cross-cultural research
CEO culture
capital structure
instrumental variables Quantile Regression for Panel Data

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10.1111/eufm.12550Licence: CC BY

CEO’s culture and firms’ leverage decisions
Copyright 2025 The Authors. This is an open access article published under a Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium, provided the author and source are cited.
Final published version, 0.98 MBLicence: CC BY

Cite this

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AU - Uddin, Gazi Salah

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CEO’s culture and firms’ leverage decisions

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