Nonlinearity between CEO power and firm leverage: evidence from the threshold model

Qaiser Munir () and Tongxia Li ()
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Tongxia Li: Universiti Malaysia Sabah

Review of Managerial Science, 2018, vol. 12, issue 3, No 2, 593-620

Abstract: Abstract This paper examines the non-linearity between Chief Executive Officer (CEO) power and firm leverage using a sample of 295 selected small and medium-sized enterprises listed on China Shenzhen Stock Exchange SMEs Board during the period 2009–2013. Specifically, a threshold estimation technique developed by Hansen (J Econ 93(2):345–368, 1999) is applied to investigate whether firms with powerful CEO use a sub-optimal leverage. The results confirm that there is a double-threshold effect exist and suggest an inverted U-shaped relationship between CEO power and firm book value-based leverage. Thus, these findings reveal that the distribution of decision-making power within firms can affect financing decision are made and CEOs with higher ability to exercise decision-making power tend to use lower leverage to pursue their own benefits.

Keywords: Firm leverage; CEO power; Threshold model; SMEs; China (search for similar items in EconPapers)
JEL-codes: G30 G34 M12 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11846-016-0224-x

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