Publication: Powerful CEOs and capital structure decisions: Evidence from the CEO pay slice (CPS)
Issued Date
2014-01-01
Resource Type
ISSN
14664291
13504851
13504851
Other identifier(s)
2-s2.0-84895764854
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Mahidol University
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SCOPUS
Bibliographic Citation
Applied Economics Letters. Vol.21, No.8 (2014), 564-568
Suggested Citation
Pandej Chintrakarn, Pornsit Jiraporn, Manohar Singh Powerful CEOs and capital structure decisions: Evidence from the CEO pay slice (CPS). Applied Economics Letters. Vol.21, No.8 (2014), 564-568. doi:10.1080/13504851.2013.875102 Retrieved from: https://repository.li.mahidol.ac.th/handle/20.500.14594/33801
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Title
Powerful CEOs and capital structure decisions: Evidence from the CEO pay slice (CPS)
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Abstract
Motivated by agency theory, we explore how powerful CEOs view leverage. Because of the agency conflict, CEOs may adopt sub-optimal leverage levels that promote their own private benefits at the expense of shareholders. Using Bebchuk et al. (2011) CEO pay slice (CPS) to gauge CEO power, we find that powerful CEOs view leverage negatively and avoid high debt. However, CEOs appear 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 nonmonotonic. Our results imply that agency problems lead to self-serving behaviour only when managers command sufficient influence in the company. Finally, we also show that our conclusion is unlikely confounded by endogeneity. © 2014 Taylor & Francis.