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Does the power gap between a chairman and CEO matter? Evidence from corporate debt financing in China

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  • Wang, Brian Yutao
  • Duan, Mengran
  • Liu, Guangqiang

Abstract

This study investigates the effects of a power gap between a firm's chairman and CEO on corporate debt financing using data from Chinese listed firms with separate chairman and CEO positions. The empirical results show that enterprises with larger power gaps obtain more debt financing and have lower financing costs. In addition, the effect of the power gap on debt financing is more pronounced for firms with a worse external governance environment and internal control, and in more competitive industries. These findings are robust to a series of sensitivity analyses. Altogether, the results indicate that in China, due to its special institutional background and cultural situation, the size of the power gap between the chairman and CEO is an important factor in corporate governance and decision-making efficiency.

Suggested Citation

  • Wang, Brian Yutao & Duan, Mengran & Liu, Guangqiang, 2021. "Does the power gap between a chairman and CEO matter? Evidence from corporate debt financing in China," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:pacfin:v:65:y:2021:i:c:s0927538x21000020
    DOI: 10.1016/j.pacfin.2021.101495
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    References listed on IDEAS

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    Cited by:

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    2. Bradbury, Michael & Jia, Jing & Li, Zhongtian, 2022. "Corporate social responsibility committees and the use of corporate social responsibility assurance services," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(2).
    3. Kayani, Umar Nawaz & Arif, Muhammad & Hoang, Khanh, 2021. "Chairman age and corporate diversification: The cases of old and powerful captains in Chinese firms," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    4. Yadu Zhang & Yiteng Zhang & Zuoren Sun, 2023. "The Impact of Carbon Emission Trading Policy on Enterprise ESG Performance: Evidence from China," Sustainability, MDPI, vol. 15(10), pages 1-27, May.
    5. Jia, Jing & Li, Zhongtian, 2022. "Risk management committees and readability of risk management disclosure," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(3).
    6. Yao, Wenyun & Lu, Feier & Wang, Yuting & Song, Zilong, 2023. "Social insurance contributions and firms' debt concentration choice: A quasi-natural experiment based on the implementation of China's social insurance law," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    Power gap; Debt financing; Principal-agent theory; Organization hierarchy theory; Shared leadership theory;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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