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The effects of formal and informal CEO power on debt policy persistence

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  • Huang, Zhen
  • Gao, Weiwei

Abstract

We explore the general trends of debt policy persistence and how formal and informal CEO power may influence the persistence based on four dimensions of debt policy. Using a sample of Chinese listed firms during 2008–2018, we clearly identify, for the first time, that the general trends of debt policy persistence include an initial downward trend phase (of 4–5 years) and a subsequent stable trend phase. We divide CEO power into formal and informal CEO power and find that CEOs’ formal power can help to increase debt policy persistence, while the role of informal power is the opposite, providing evidence that CEO power has a double-edged effect on debt policy persistence. Further, our results show that the most important dimensions through which formal and informal CEO power have their respective effects are ownership power and financial expert power. Lastly, it is CEOs’ formal power rather than their informal power that plays a dominant role in promoting the persistence of debt policy.

Suggested Citation

  • Huang, Zhen & Gao, Weiwei, 2022. "The effects of formal and informal CEO power on debt policy persistence," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:ecofin:v:62:y:2022:i:c:s1062940822000961
    DOI: 10.1016/j.najef.2022.101748
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    More about this item

    Keywords

    Debt policy persistence; Formal CEO power; Informal CEO power; Trends; Debt heterogeneity;
    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
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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