Leadership structure and the value of debt contracts: Evidence from the Canadian market

We observe a stronger market reaction to the announcement of bank credit agreements when firms have a Separate CEO-Chair structure (relative to a Combined CEO-Chair structure). This stronger market reaction for firms with a Separate CEO-Chair structure suggests that the division of CEO and Chair of the Board responsibilities between two people enhances a firm's ability to generate value from its loans. This conclusion is further supported by the fact that the observed market reaction for firms with a Separate CEO-Chair structure is even greater when the size of the board of directors is small. Our results also indicate that bank monitoring activities are more valuable for firms with a Combined CEO-Chair structure and no institutional shareholder.