Executives’ early-life experience and corporate debt contracting: Evidence from CEO military experience

• Military service has a major influence on an individual’s values and personalities. • Banks charge lower costs for firms headed by military CEOs. • These firms are subject to lower collateral requirements and covenant restrictions. • Military CEOs improve the firm’s information environment and reduce risk. • Leadership background influence access to capital in global credit markets. We show that the leadership style of veteran CEOs has important implications for their companies’ costs of bank loans. We find that banks charge, on average, 10.8 basis points lower for firms headed by veteran CEOs, compared to otherwise similar firms. Firms with veteran CEOs are also subject to lower collateral requirements and covenant restrictions. The effect of veteran CEOs on loan costs comes from an improvement in the firm’s information environment and a reduction in firm risk. Overall, our study highlights the increasing relevance of leadership background in lending decisions, suggesting that personal characteristics may influence access to capital in global credit markets.