Firm leverage and employee pay: The moderating role of CEO leadership style

Balbinder Singh Gill, Jongmoo Jay Choi and Kose John

International Review of Financial Analysis, 2024, vol. 95, issue PA

Abstract: We investigate how a CEO's leadership style moderates the relationship between leverage and average employee pay. We first show that the relationship between leverage and average employee pay is negative, consistent with the leverage disciplinary hypothesis. Next, we examine how CEO leadership style moderates this negative effect. We find that CEOs with more charisma reduce the disciplinary effect of leverage. The humane CEOs of companies with more debt sharpen the disciplinary effect by paying their employees less for increased risk of job loss that comes with high leverage. An important policy implication is that CEO leadership style can influence the outcome of labor management negotiations regarding employee pay.

Keywords: Capital structure; Leverage; CEO leadership style; Employee pay; Corporate governance; Insolvency law; Labor negotiations (search for similar items in EconPapers)
JEL-codes: G32 G33 J31 J63 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:95:y:2024:i:pa:s1057521924003144

DOI: 10.1016/j.irfa.2024.103382

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