Publication: Capital Structure, CEO Dominance, and Corporate Performance
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Issued Date
2012-12-01
Resource Type
ISSN
09208550
Other identifier(s)
2-s2.0-84868448172
Rights
Mahidol University
Rights Holder(s)
SCOPUS
Bibliographic Citation
Journal of Financial Services Research. Vol.42, No.3 (2012), 139-158
Suggested Citation
Pornsit Jiraporn, Pandej Chintrakarn, Yixin Liu Capital Structure, CEO Dominance, and Corporate Performance. Journal of Financial Services Research. Vol.42, No.3 (2012), 139-158. doi:10.1007/s10693-011-0109-8 Retrieved from: https://repository.li.mahidol.ac.th/handle/123456789/13874
Research Projects
Organizational Units
Authors
Journal Issue
Thesis
Title
Capital Structure, CEO Dominance, and Corporate Performance
Author(s)
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 a re 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. © 2011 Springer Science+Business Media, LLC.