CEO attributes and borrowing costs: exploring the moderating role of financial literacy

This study examines the effect of Chief Executive Officer (CEO) attributes on borrowing costs and the moderating role of the CEO's financial literacy on this relationship. We employed 2926 firm-year observations of non-financial firms listed on the Pakistan Stock Exchange. We used ordinary least squares regression to test the hypotheses and further employed fixed effect analysis, generalized method of moments estimation and two-stage least squares analysis to resolve the possible endogeneity concerns. Our empirical results indicate that CEO age, tenure, ownership and gender are negatively associated with borrowing costs, whereas CEO duality is positively associated with borrowing costs. Furthermore, we report that a financially literate CEO strengthens the relationships in the cases of age, tenure, ownership and gender while it weakens the relationship in the case of CEO duality. Our results provide novel evidence in this context and extend empirical support to upper echelons theory in the case of an emerging economy.