We examine the relation between chief executive officer (CEO) sensation seeking, which captures the desire for varied, novel, and complex personal sensations and experiences, and corporate debt contracting. Using pilot certificates as a proxy for the personality trait of sensation seeking, we find that firms with pilot CEOs use longer maturity debt financing even when long-term debt is more costly than short-term debt. Our findings are robust to controlling for the endogenous matching between firms and CEOs. Our evidence indicates that CEOs with sensation-seeking personality traits prefer long-term debt financing to avoid the liquidity risk associated with short-term debt financing that may hamper other corporate activities motivated by their sensation seeking.
Freund, Steven and Kovacs, Tunde and Nguyen, Nam and Phan, Hieu V., Midair Refueling for Sensation Seeking? Pilot CEOs and Corporate Debt Contracting (September 11, 2020). Available at SSRN: https://ssrn.com/abstract=3690767 or http://dx.doi.org/10.2139/ssrn.3690767