Study On The Relationship Of CEO’s Educational Background And Equity Financing Preference

Financing preference of a firm not only affects its financing decision but alsoinfluences its capital structure, corporate governance and valuation.Researches onthis issue have become the frontier of corporate finance in recent years.Scholars athome and abroad has been studied on this issue extensively, but most of themstudy this problem from the perspective of Institutional background or thecorporate governance structure, ignoring the individual differences of managers.In fact, it has been proven that the manager’s heterogeneity will impact thecompany’s strategic decision-making.With the development of the marketeconomic system, the CEO’s educational background required to be continuouslyimproved and more and more attention are paid to the CEO’s educationalbackground. Therefore, researching equity financing preference from theperspective of the CEO’s educational background can not only deepen theunderstanding of the role played by managers in the corporate financing decisions,but also provide new empirical evidence for the effects of the equity financingpreference.On the basis of literature review and the theories of pecking order theory,upper echelons theory, managerial entrenchment theory, principle-agent theory,and asymmetric information theory, the paper describes the statu of equityfinancing preference in our country.Based on this, the paper refined theoreticalanalysis framework and hypotheses of the relationship of CEO’s educationalbackground and the equity financing preference.This paper selected A-sharecompanies listed in Shanghai and Shenzhen stock market from the beginning of2010to the end of2012as study sample, and used empirical methods ofdescriptive statistics,mean comparison,regression analysis and other methods toanalyze the relationship of CEO’s educational background and the equityfinancing preference. Further, we classify the sample from MBA and financialbackground to study of the relationship in-depth. Based on this, the paper discusswhether the corporate governance will affect the relationship of CEO’seducational background and the equity financing preference.The study found that,it is a negative correlation between the CEO’s educational background and theequity financing preference.The higher the CEO’s educational, the less preferredequity financing. The results show that managers of MBA education choose higher leverage which indicates that MBA education characterizes the managersas more risk-taking, decreases the extent of managerial entrenchment andimproves their ability of dealing with complex information.CEO’s financialbackground was negatively correlated with the equity financing preference.Thestudy also showed that the ownership concentration in which CEO worksmoderating the relationship between CEO’s educational background and theequity financing preference. According to the conclusions, this paper advises thatCEO’s level of education should be improved, pay attention to the impact ofcorporate governance.This paper enriches managerial entrenchment theory and upper echelonstheory to provide new empirical evidence for the factors influencing of the equityfinancing preference.