Abstract
We examine the association between CEO entrenchment and capital structure decisions of Asian firms. We find that firms with higher CEO entrenchment have a lower level of leverage. Specifically, firms with CEOs who chair the board, have a higher CEO tenure, and have a lower proportion of outside directors, have lower leverage. The negative association between CEO entrenchment and corporate leverage is more pronounced in firms with higher agency costs of free cash flow. In addition, for firms with entrenched CEOs, those firms with greater institutional investor equity ownership have higher leverage. This result suggests that active monitoring by large shareholders mitigate sentrenched CEOs’ incentives to avoid debt.
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Notes
- 1.
See Chen et al. (2009) for a review of important and representative capital structure models.
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Lee, K.W., Yeo, G.H.H. (2010). Capital Structure in Asia and CEO Entrenchment. In: Lee, CF., Lee, A.C., Lee, J. (eds) Handbook of Quantitative Finance and Risk Management. Springer, Boston, MA. https://doi.org/10.1007/978-0-387-77117-5_56
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DOI: https://doi.org/10.1007/978-0-387-77117-5_56
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