CEO Power, Firm Characteristics and Capital Structure: Some Empirical Evidence
25 Pages Posted: 20 May 2020
Date Written: April 23, 2020
Abstract
This study explores whether the CEO power and the firm characteristics have effects on the capital structure of the firm based on empirical evidence. Based on the agency theory, the CEOs may adopt sub-optimal capital structure due to the conflicts of interests between the executives and the shareholders. And in common sense, the firm characteristics should influence the capital structure of the firm as well. This study suggests that when controlling the industry effect, the more powerful CEOs, which is measured by the CEO pay slice introduced by Bebchuk, Cremers, and Peyer (2011), tend to adopt more debt in the capital structure. And the size of the firm, the liquidity of the firm and the interest coverage ratio of the firm tend to decrease the debt ratio of the firm. Moreover, the findings of this study imply that the CEO power and firm characteristics mentioned above is useful when predicting the firm’s capital structure in the next year.
Keywords: CEO power, Firm characteristics, Capital structure, CEO pay slice
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