An analysis of the Effect of Active Executive Departures on the Debt Financing Costs

Abstract

As an important aspect of corporate governance, executive behavior has always been a major topic of academic concerns. As executive changes have a significant impact on corporate investment and financing decisions, this paper analyzes and tests the relationship between active executive departures and debt financing costs based on the sample data of A-share main-board listed companies in China from 2010 to 2020. The study found that: (1) active executive departures significantly increases the debt financing costs; (2) High corporate disclosure quality and high analyst focus help mitigate the impact of rising debt financing costs caused by active executive departures. Further analysis shows that the higher the proportion of institutional investors holding shares and among the companies that are state-owned in nature, the less the impact of active executive departures on debt financing costs. The conclusion of this paper not only helps to enrich the related study achievements of corporate governance, but also helps to clarify the influencing factors of debt financing costs of companies. Meanwhile, it can provide decision-making reference for listed companies to improve corporate governance and reduce the debt financing costs as well.