CEO ability heterogeneity, board’s recruiting ability and credit risk

Tsung-Kang Chen, Hsien Hsing Liao*, Wen Hsuan Chen

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Scopus citations


This study investigates the effects of the CEO (Chief Executive Officer) ability heterogeneity of an industry and the board’s recruiting capability on firm credit risk by using 26,235 America bond data from the year 2001 to 2014. We find that both CEO ability heterogeneity and board’s recruiting ability enhance a firm’s credit quality when controlling for other well-known determinants of bond yield spreads, implying that high CEO ability heterogeneity and good board’s recruiting ability both encourage a firm to replace the underperformed CEO earlier and improve the firm’s subsequent performance, which enhances firm value and credit quality (Merton in J Finance 29(2):449–470, 1974). We also find that good macroeconomic conditions weaken the effect of CEO ability heterogeneity on bond yield spreads while enhance that of board’s recruiting ability. Moreover, board’s recruiting ability weakens the effect of CEO ability heterogeneity on bond yield spreads, indicating that there may exist a trade-off relationship between the CEO ability heterogeneity effect and the board’s recruiting ability effect. Finally, the results are robust when considering endogeneity issues and other measures of CEO ability heterogeneity.

Original languageEnglish
Pages (from-to)1005-1039
Number of pages35
JournalReview of Quantitative Finance and Accounting
Issue number4
StatePublished - 1 Nov 2017


  • Board’s recruiting ability
  • Bond yield spreads
  • CEO ability heterogeneity
  • Credit risk

Fingerprint Dive into the research topics of 'CEO ability heterogeneity, board’s recruiting ability and credit risk'. Together they form a unique fingerprint.

Cite this