CEO’s culture and firms’ leverage decisions

Debt mitigates agency problems between managers and stockholders by reducing free cash flows, yet why managers voluntarily adopt debt discipline remains unclear. This paper examines how CEOs’ managerial traits, shaped by national culture, influence leverage decisions. Analysing 3,338 CEOs from 41 nationalities in 2,280 US firms in the Bloomberg 3000 index (from 2007-2024), we find cultural values impact CEOs' perceptions of debt's costs/benefits. High-mastery CEOs reduce debt regardless of current leverage, while highly embedded CEOs inadvertently pursue target capital structures. A non-U.S. CEO sample shows cultural values are portable. Our findings are robust to sensitivity and endogeneity tests.