Abstract

http://ssrn.com/abstract=1800863
 


 



Capital Structure, CEO Dominance, and Corporate Performance


Pornsit Jiraporn


Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Pandej Chintrakarn


Mahidol University International College (MUIC)

Yixin Liu


University of New Hampshire

April 1, 2011


Abstract:     
We use agency theory to investigate the influence of CEO dominance on variation in capital structure. Due to agency conflicts, managers may not always adopt leverage choices that maximize shareholders’ value. Consistent with the prediction of agency theory, the evidence reveals that, when the CEO plays a more dominant role among top executives, the firm adopts significantly lower leverage, probably to evade the disciplinary mechanisms associated with debt financing. Our results are important as they demonstrate that CEO power matters to critical corporate outcomes such as capital structure decisions. In addition, we find that the impact of changes in capital structure on firm performance is more negative for firms with more powerful CEOs. Overall, the results are in agreement with prior literature, suggesting that strong CEO dominance appears to exacerbate agency costs and is thus detrimental to firm value.

Number of Pages in PDF File: 45

Keywords: capital structure, agency costs, leverage, CEO dominance, CEO power, agency theory, CEO centrality

JEL Classification: G32, G34

working papers series





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Date posted: April 2, 2011  

Suggested Citation

Jiraporn, Pornsit and Chintrakarn, Pandej and Liu, Yixin, Capital Structure, CEO Dominance, and Corporate Performance (April 1, 2011). Available at SSRN: http://ssrn.com/abstract=1800863 or http://dx.doi.org/10.2139/ssrn.1800863

Contact Information

Pornsit Jiraporn (Contact Author)
Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )
30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)
HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html
Pandej Chintrakarn
Mahidol University International College (MUIC) ( email )
999 Buddhamonthon 4 Road
Salaya, Nakhonpathom, 73170
Thailand
66 (0) 2441 5090 (Phone)
66 (0) 2441 9745 (Fax)
Yixin Liu
University of New Hampshire ( email )
Durham, NH 03824
United States
603-862-3357 (Phone)
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