TMT Stability And The Cost Of Debt

Under the new economic background of growth rate decreasing and industrial structure upgrading,Chinese enterprises are forced to give up the traditional rough development model and turn to a much more delicate development model dominated by the company’s TMT.The drastic changes of internal and external environment lead to the stable operation of the company more and more dependent on the stable and efficient TMT.Several cases of complete TMT turnover in recent years and the following forced.interruption of those companies’ daily activities shows us the importance of executive human capital to a company once again.It shows that frequent top management turnover or poor stability of the TMT will lead to the loss of human capital of the company’s executives,thus increasing the company’s operational risk.Therefore,TMT stability is of great significance to the company’s daily operation.In order to further explore the above issues,this paper empirically tests the empirical relationship between TMT stability and the cost of debt,based on 19,265 company annual observation sample data of A-share listed companies from 2007 to 2018.The results show that:(1)The higher TMT stability,the lower the cost of debt for a company,which means that the more stable the TMT,the lower operational risk of the company,and the lower the risk premium compensation required by those debt investors;(2)management ownership is conducive to enhancing the negative relationship between the stability of the TMT and the cost of debt,which means that as an incentive mechanism and signal transmission,management ownership helps to strengthen the optimistic influence from the stability of TMT to the operational risk of a company;(3)Institution ownership can weaken the negative relationship between TMT stability and the cost of debt,which means that institutional investors can play an alternative role as an external force of corporate governance.The above conclusions are still significant after robustness tests on endogeneity and changing main variable measurement methods.In particular,compared with the change of chairman or general manager,creditor’s investors are more concerned about the impact of the stability change of TMT on the company’s operation,that is,the so-called "A bigger official can’t determine some specific things other than those officials who are in charge".Besides,the influence of TMT stability is mainly in non-state-owned enterprises,and the TMT stability does not significantly affect the cost of equity financing.This research has important theoretical contribution and practical enlightenment.In theory,this paper enriches the relevant research literature on TMT change and corporate debt financing cost,and improves the measurement method of the stability of the top management team;in practice,the research conclusions of this paper enlighten companies and investors to focus on the potential impact of other top managers’ human capital and its turnover on the company.