Managerial Ability, Leverage, and Debt Maturity Structure: An Empirical Analysis

This study investigates the impact of managerial ability on corporate leverage and debt maturity structure, addressing the limitations of traditional managerial proxies in dynamic business environments. Utilizing a novel measure of managerial ability (Demerjian et al., 2012) and panel data analysis of non-financial firms listed on the KOSPI market, we examine the relationship between persistent managerial competence and capital structure decisions. Our findings reveal that firms with persistently high managerial ability exhibit a significantly greater reliance on short-term debt and maintain lower overall leverage. This preference for short-term debt aligns with signaling and market timing theories, suggesting strategic utilization for flexibility and cost-effectiveness. The lower leverage indicates a focus on financial flexibility and reduced long-term commitments. These results, robust to panel data analysis, contribute to the literature by highlighting the significant role of managerial ability in shaping corporate debt policy, extending traditional capital structure theories and offering practical implications for financial analysis and governance.