Managers' experience and banks' capital structure: Evidence from Iran

Document Type : Original Article

Authors

1 Institute for Planning Research, Agricultural Economics and Rural Development, Tehran, Iran.

2 Department of Public Administration, and Ahad Isfahan, Islamic Azad University, Isfahan, Iran.

Abstract
Purpose: Management ability is part of the human capital of companies and is classified as part of intangible assets. Higher management capability can lead to more efficient management of company activities, especially during critical operational periods when management decisions can have a significant impact on performance. It is expected that capable managers will influence companies' capital structures and the speed of their adjustments. The main objective of this study is to investigate the effect of top-level managers' experience on the capital structure of banks listed on the Iranian Stock Exchange.
Methodology: The statistical population of this study includes 18 banks in the period 2018-2023, and the systematic elimination method was used for sampling. The Generalized Method of Moments (GMM) regression was used to estimate the research model.
Findings: The study found that senior managers' experience positively affects the adjustment of banks' capital structures. Experienced managers achieve higher productivity by better managing the organization's resources, engaging in less profit management, and therefore achieve higher-quality accruals. As a result, it can be expected that senior managers' experience will affect the book value of total long-term debt, an indicator of capital structure. Companies with more capable managers are more likely to earn higher returns, and those returns can act as a shield against portfolio risk. Therefore, such companies are better positioned to use debt rather than increase capital.
Originality/Value: This paper separates managerial skills from capital structure and allows for the possibility that senior managers' skills (such as experience) directly affect the company's capital structure. The use of an index of years of experience for bank senior managers, and the application of agency theory and equilibrium theory to maximize the benefits of tax-shield debt in bank capital structure, are among the ways this research differs from others.

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