Credit risk assessment and executives’ legal expertise
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Date
2023-12
Open Access Location
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Springer Science+Business Media, LLC
Rights
(c) 2022 The Author/s
CC BY 4.0
CC BY 4.0
Abstract
We study whether firms that are led by chief executive officers (CEOs) with law degrees (lawyer CEOs) have different credit ratings and costs of debt from other firms. Our sample consists of Standard & Poor’s 1500 firms from 1992 to 2020, 9.2% of which have lawyer CEOs. We find that these firms have better credit ratings, compared to other firms. On average, their cost of debt is 10% lower than that of firms led by CEOs without legal backgrounds. Our results are robust to different specifications, sampling methods, and controls, such as firm and CEO characteristics. We identify two ways that CEO expertise translates into higher credit ratings: lawyer CEOs are associated with a lower future volatility of stock returns and a reduction in information risk. The decreased business risk and better financial reporting are associated with 5% lower auditing fees for firms with lawyer CEOs.
Description
Keywords
Credit ratings, CEOs, Legal education, Cost of capital, Audit pricing
Citation
Pham MH, Merkoulova Y, Veld C. (2023). Credit risk assessment and executives’ legal expertise. Review of Accounting Studies. 28. 4. (pp. 2361-2400).