Proceedings of the 8th International Conference on Research in Management and Economics
Year: 2023
DOI:
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The Impact of CEO’s Educational Background on Default Risk: Evidence from China
Hongyu Ma
ABSTRACT:
The paper examines the impact of a CEO’s educational background on corporate default risk in China Listed Companies. We use a dataset spanning from 2008 to 2022 and consisting of 5159 publicly listed firms to analysis. We employ the Merton model and Z-score to measure default risk. Results show that a higher CEO educational background has a negative impact on a company’s default risk. The nonlinear quadratic regression shows a convex relationship, showing that the effect of education on risk-taking behavior is more pronounced among CEOs with a bachelor’s degree or less and diminished among CEOs with a master’s degree or more. Moreover, the study finds that the effect of a CEO’s educational background on a firm’s default risk is enhanced in the context of increased information transparency and market competition. We also use two-stage least squares regression to address the endogeneity issue. This study provides empirical evidence of how CEOs from different educational backgrounds manage default risk. The study’s results will help shareholders make decisions when selecting CEOs and help investors choose the proper investment targets.
keywords: Bankruptcy risk, Corporate Governance, Executive Education, Merton model, Upper echelons perspective