Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
958616 | Journal of Empirical Finance | 2010 | 19 Pages |
Abstract
We argue that executives can affect firm outcomes only if they have influence over crucial decisions. This study explores the impact of CEO power or CEO dominance on bond ratings and yield spreads. We find that credit ratings are lower and yield spreads higher for firms whose CEOs have more decision-making power. To further investigate why bondholders are concerned about CEO power, we show that powerful CEOs tend to maintain an opaque information environment. Bondholders demand higher yields because it is difficult for them to monitor managers in firms with powerful CEOs. Taken together, the results suggest that bondholders perceive CEO power as a critical determinant of the cost of bond financing.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Yixin Liu, Pornsit Jiraporn,