Environmental Uncertainty,CEO's Financial Working Experience And The Cost Of Capital

Capital cost is one of the core concepts of modern financial theory.The existing literatures provide a wide range of evidences for influencing factors of capital cost from the perspective of corporate governance.But the research on relationship between managers' s characteristics and capital cost is very rare.With the theory of Upper Echelon Theory and behavioral finance theory put forward,the characteristics of managers has gradually become a hot academic research.Based on managerial heterogeneity,the topic of the senior managers' characteristics gradually has further discussion in academia.They are from the perspective of the overall characteristics of managers such as average age,gender,education level,educational background,tenure and so on.However,the discussion on the influence of a single core manager on enterprises' decision is comparatively insufficient,especially in the factor of working experience.As a top management of enterprise,CEO usually is responsible for the daily affairs.He has the right to decide major issues and the final executive power of enterprise.As top management of enterprise,CEO usually is responsible for the daily affairs,has the right to decide major issues and the final executive power of enterprise.The facts show that more and more enterprises begin to hire talents with the experience of financial working as the CEO.Because they think that these talents can not only apply the financial professional knowledge to the actual enterprise financial operation,leverage financial leverage and broaden access to finance to lower the cost of capital.But,at present the study on enterprises' cost of capitai that is influenced by CEO's financial working experience is lacking in academic circles.In addition,the extent to which CEO's financial working experience may have different impacts on capital costs may be different when the environmental uncertainty is different.In this theoretical and practical background,this paper attempts to discuss whether the CEO's financial working experience has impact on the cost of capital,and in different environmental uncertainties,whether the impact are different.In order to determine the relationship between the CEO's financial working experience and capital cost and the different performance of that under different environmental uncertainty,this paper takes the enterprises of A-share companies which occurred CEO change during 2009 to 2013 as samples,and analyzes the financial data by sieving respective sample dates from 2006 to 2015.Through empirical research methods,using the DID model,the paper take a lengthways look for the capital cost before and after CEO's change in eligible enterprises;Meanwhile,in order to further demonstrate that CEO with financial working experience has different impact on the capital cost in different environmental uncertainty,the paper also do classified analyze for different environmental uncertainty.The study found that: First,the financial working experience of CEO will significantly reduce the cost of capital.CEO's financial working experience and knowledge make them good at leveraging financial leverage,favoring debt financing,easier to capital,better disclosure of corporate information,and then reduce the investor's required rate of return,which can reduce the cost of capital.Second,in the case of high environmental uncertainty,the company hired a CEO with financial working experience can also significantly reduce the capital cost.Higher environmental uncertainties increase enterprise's earnings volatility,information asymmetry,and operational risk,resulting in higher capital costs.In this case,CEO with financial working experience are more professional to deal with the problem in a reasonable way.They can reduce the negative affect of environmental uncertainty through more robust earnings management,rational disclosure of information,and diversified investments.The conclusion of this paper has profound guiding significance for professional quality training of CEO,the appointment of executives and the selection of enterprises' managers.