Powerful CEOs and Capital Structure Decisions: Evidence from the CEO Pay Slice (CPS)

13 Pages Posted: 12 Dec 2013

See all articles by Pandej Chintrakarn

Pandej Chintrakarn

Mahidol University International College (MUIC)

Pornsit Jiraporn

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

Manohar Singh

Willamette University - Atkinson Graduate School of Management

Date Written: December 11, 2013

Abstract

Motivated by agency theory, we explore how powerful CEOs view leverage. Due to the agency conflict, CEOs may adopt sub-optimal leverage levels that promote their own private benefits at the expense of shareholders. Using Bebchuk, Cremers, and Peyer’s (2011) CEO pay slice (CPS) to gauge CEO power, we find that powerful CEOs view leverage negatively and avoid high debt. However, CEOs appears to adopt sub-optimal leverage only when their power is sufficiently consolidated. Relatively weak CEOs do not seem to avoid leverage. The effect of CEO power on capital structure decisions is thus non-monotonic. Our results imply that agency problems lead to self-serving behavior only when managers command sufficient influence in the company. Finally, we also show that our conclusion is unlikely confounded by endogeneity.

Keywords: capital structure, leverage, agency problems, CEO power, agency conflict, debt, powerful CEOs

JEL Classification: G32, G34

Suggested Citation

Chintrakarn, Pandej and Jiraporn, Pornsit and Singh, Manohar, Powerful CEOs and Capital Structure Decisions: Evidence from the CEO Pay Slice (CPS) (December 11, 2013). Available at SSRN: https://ssrn.com/abstract=2366352 or http://dx.doi.org/10.2139/ssrn.2366352

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)

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

Manohar Singh

Willamette University - Atkinson Graduate School of Management ( email )

900 State Street
Salem, OR 97301
United States

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