Does CEOs’ Education Matter for Convertible Bond Issuance Decisions?

Abstract

We investigate the effect of CEOs’ education on their firms’ probability of choosing convertible debt instead of straight debt and equity. Using a security choice framework, we find that CEOs with higher levels of education have a greater likelihood of issuing convertible debt, particularly when this is beneficial to their firms. However, CEOs with MBAs are unlikely to rely on convertibles, consistent with the assumption that an MBA might impede non-standard corporate finance choices. Consistent with the upper echelon theory, we find that better educated executives are more innovative and make better corporate finance choices. The findings withstand a range of robustness tests.