Work

Torn between two debt types? The role of managerial ability in a firmʼs choice between bank loans and public debt

Year: 2024

Type: article

Abstract: Motivated by the theoretical literature on firms' choice between bank loans and public debt, this paper analyzes whether more able managers choose a higher fraction of public debt. We find that firms with more able managers choose a higher level of public debt. We also find that the use of public debt by more able managers is positively associated with wealth creation for shareholders and negatively associated with bankruptcy risk. Our cross-sectional analyses suggest that this baseline relationship is conditional on a better information environment. We address endogeneity issues in multiple ways and run an extensive array of robustness checks. Overall, our findings are consistent with the prediction that managerial ability mitigates the information monopoly of banks.

Source: Journal of Banking & Finance

DOI: 10.1016/j.jbankfin.2024.107205

Authors: Muhammad Kabir, Dewan Rahman, Taher Jamil

Institutions: University of Manitoba, The University of Queensland, The University of Western Australia

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,240

OpenAlex ID: W4396733014

FWCI: 13.94

Cites: 69

Cited by: 15

Related to: 10