TY - JOUR
T1 - CEO Educational Background and External Financing Choices
T2 - Evidence from Korea
AU - Mun, Seongjae
AU - Kim, Hyeong Joon
N1 - Publisher Copyright:
© 2021, Korean Finance Association. All rights reserved.
PY - 2021/11
Y1 - 2021/11
N2 - Educational background in Korea can represent personal traits, since academic tracks in the Korean educational system are determined earlier in the individual’s lifetime than in other countries. This study investigates whether CEO educational background affectswww.earticle.net the firm’s external financing choices. We find that firms with CEOs who majored in science or engineering are less likely to issue equity, and the investment of firms with such CEOs is more responsive to cash flow. We also find that equity issue announcements by firms with such CEOs exhibit more negative market reaction, suggesting that those have bad signals, for instance, poor conditions to issue debt even though they prefer debt to equity. Overall, our study suggests that Korean CEOs’ educational background, particularly science or engineering, is related to managerial confidence, which is the belief that the market undervalues their firms. However, we cannot completely rule out the endogeneity concern arising from CEO-firm matching.
AB - Educational background in Korea can represent personal traits, since academic tracks in the Korean educational system are determined earlier in the individual’s lifetime than in other countries. This study investigates whether CEO educational background affectswww.earticle.net the firm’s external financing choices. We find that firms with CEOs who majored in science or engineering are less likely to issue equity, and the investment of firms with such CEOs is more responsive to cash flow. We also find that equity issue announcements by firms with such CEOs exhibit more negative market reaction, suggesting that those have bad signals, for instance, poor conditions to issue debt even though they prefer debt to equity. Overall, our study suggests that Korean CEOs’ educational background, particularly science or engineering, is related to managerial confidence, which is the belief that the market undervalues their firms. However, we cannot completely rule out the endogeneity concern arising from CEO-firm matching.
KW - CEO educational background
KW - External financing
KW - Investment
KW - Managerial traits
KW - Seasoned equity offerings
UR - http://www.scopus.com/inward/record.url?scp=85169334121&partnerID=8YFLogxK
U2 - 10.37197/ARFR.2021.34.4.3
DO - 10.37197/ARFR.2021.34.4.3
M3 - Article
AN - SCOPUS:85169334121
SN - 1229-0351
VL - 34
SP - 79
EP - 124
JO - Asian Review of Financial Research
JF - Asian Review of Financial Research
IS - 4
ER -