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

• Published in: Pacific-Basin finance journal 2021-02, Vol.65, p.101495, Article 101495
• Main Authors: Wang, Brian Yutao, Duan, Mengran, Liu, Guangqiang
• Format: Article
• Language: English
• Subjects: Debt financing; Organization hierarchy theory; Power gap; Principal-agent theory; Shared leadership theory
• ISSN: 0927-538X; 1879-0585
• DOI: 10.1016/j.pacfin.2021.101495

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. •This study investigates the effects of Chairman-CEO power gap on corporate debt financing.•We find that the companies with greater power gap between Chairman and CEO can obtain more debt and interest rate.•The relation is more pronounced for firms with worse external governance, internal control and higher industry competition.•Additional evidences show that Chairman-CEO power gap can play the monitoring role and improve decision efficiency.•This paper could provide the empirical evidence and policy guidance for the construction of TMT of listed companies.