The Impact of Top Management Education from Reputable Universities on Corporate Capital Structure: Evidence from Indonesia

Abstract

This article aims to analyse the relationship between the chief executive and financial officer (CEO and CFO) from reputable universities and capital structure. We use least-square regression using 3,003 firm-year observations of companies listed in Indonesia from all industries except the financial sector from 2010 to 2019. Consistent with the hypothesis development, the results show that CEOs and CFO from reputable universities have a significant positive relation to the debt-equity ratio. The same result is also shown in the robust test using coarsened exact matching (CEM) and Heckman’s two-stage model. We also document that in a high-growth industry, CEO reputation plays an important effect on capital structure, meanwhile in a low growth industry, CFO does. Interestingly, only the company who has low-tech industry shows a significant education reputation on capital structure. We also separate the sample using education levels, undergraduate and postgraduate. These findings will interest policymakers and companies when recruiting top managers to consider their educational background because it influences capital structure decisions. This study provides a theoretical contribution to the literature on the relationship between top management educational background and capital structure in Indonesia.