The effect of CEO power on bond ratings and yields

Liu, Yixin; Jiraporn, Pornsit

doi:10.1016/j.jempfin.2010.03.003

Cited by 197 publications

(159 citation statements)

References 73 publications

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“…Bhojraj and Sengupta (2003) found that outsiders have a positive relationship with credit ratings. Liu and Jiraporn (2010) observed a lowering of credit ratings when the CEOs have more decision-making power. Our results on the relationship between credit rating with outsiders and CEO duality are inconsistent with these researches.…”

Section: Capital Structure Determinants Of Large-listed Firmsmentioning

confidence: 99%

An Inverse Problem Study: Credit Risk Ratings as a Determinant of Corporate Governance and Capital Structure in Emerging Markets: Evidence from Chinese Listed Companies

Kang

Ausloos

2017

Economies

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Abstract:Credit risk rating is shown to be a relevant determinant in order to estimate good corporate governance and to self-optimize capital structure. The conclusion is argued from a study on a selected (and justified) sample of (182) companies listed on the Shanghai Stock Exchange (SHSE) and the Shenzhen Stock Exchange (SZSE) and which use the same Shanghai Brilliance Credit Rating & Investors Service Company (SBCR) assessment criteria, for their credit ratings, from 2010 to 2015. Practically, 3 debt ratios are examined in terms of 11 characteristic variables. Moreover, any relationship between credit rating and corporate governance can be thought to be an interesting finding. The relationship we find between credit rating and leverage is not as evident as that found by other researchers for different countries; it is significantly positively related to the outside director, firm size, tangible assets and firm age, and CEO and chairman office plurality. However, leverage is found to be negatively correlated with board size, profitability, growth opportunity, and non-debt tax shield. Credit rating is positively associated with leverage, but in a less significant way. CEO-Board chairship duality is insignificantly related to leverage. The non-debt tax shield is significantly correlated with leverage. The correlation coefficient between CEO duality and auditor is positive but weakly significant, but seems not consistent with expectations. Finally, profitability cause could be regarded as an interesting finding. Indeed, there is an inverse correlation between profitability and total debt (Notice that the result supports the pecking order theory). In conclusion, it appears that credit rating has less effect on the so listed large Chinese companies than in other countries. Nevertheless, the perspective of assessing credit risk rating by relevant agencies is indubitably a recommended time dependent leverage determinant.

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Section: Capital Structure Determinants Of Large-listed Firmsmentioning

confidence: 99%

An Inverse Problem Study: Credit Risk Ratings as a Determinant of Corporate Governance and Capital Structure in Emerging Markets: Evidence from Chinese Listed Companies

Kang

Ausloos

2017

Economies

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“…Structural power, which is based on formal organization structure and hierarchical authority, constitutes the driving force behind the evolution of organizations (Hambrick and Mason 1984;Finkelstein 1992). This stream of literature contends that strong managerial power exacerbates agency problems, allows management to make suboptimal investment decisions, and strategically increases their power to derive benefits from control of their companies (Shleifer and Vishny 1989;Liu and Jiraporn 2010). Moreover, as dominance of the managerial team strengthens, the firm experiences higher information asymmetry, making it more difficult for shareholders and bondholders to monitor managers' actions.…”

Section: The Chinese Growth Enterprises Market Boardmentioning

confidence: 99%

Capital structure of Chinese listed SMEs: an agency theory perspective

2016

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Prior work examining the antecedents of capital structure for small and medium-sized enterprises in emerging markets is limited. This paper sheds light on how the corporate governance mechanisms adopted by firms on the newly established Growth Enterprise Market (GEM) in China influence their use of debt. We find that the financial leverage of GEM firms is positively influenced by executives' shareholding and their excess cash compensation. Ownership concentration appears to reduce leverage, whereas the percentage of tradable shares increases leverage. In contrast, institutional investors' shareholding does not influence the level of debt. Traditional factors such as tax and operating cash flow are insignificant in explaining the debt levels among GEM firms.

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“…A CEO who has considerable decision-making power is associated with high yield spreads. Powerful CEOs tend to maintain an opaque information environment and become a critical determinant to the cost of bond financing (Liu & Jiraporn, 2010;Shailer & Wang, 2015). CEO duality positively affects firm performance, and separating the roles of CEO and chairman is associated with low yield spreads (John & Senbet, 1998;Liu & Jiraporn, 2010).…”

Section: Corporate Governance Institutional Investor Bod and Agencmentioning

confidence: 99%

Institutional Ownership, Board of Directors and Yield Spreads in Long- and Medium-term Corporate Bonds and Sukuk

Saad¹,

Haniff

Ali

2018

GJAT

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Previous studies documented that type of investor significantly affects the performance of bonds and sukuk. These studies showed that the yield to maturity (YTM) of bonds and sukuk are significantly associated with institutional investors. This association is because institutional investors actively monitor the performance of bonds and sukuk. Apart from the type of investor, the roles played by the board of directors (BOD) in decision making significantly influence the performance of bonds and sukuk, especially the YTM. This study aims to investigate the relationship between institutional ownerships and the BOD and yield spreads of long-and medium-term corporate bonds and sukuk. Data are obtained from firm issuers' annual reports, Bond Info Hub of Malaysia Central Bank, Department of Malaysia Statistics and Bloomberg from 2000 to 2014. The study employed unbalanced panel data approach for multivariate robust regression, OLS, fixed-effect, and random-effect models. Results revealed that the presence of top-six institutional investors and characteristics of the BOD exert a significant negative effect on the yield spreads. The findings are also consistent with the agency cost of debt theory, which suggests that long-term bonds carry a lower cost of defaults than medium-term bonds.

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The effect of CEO power on bond ratings and yields

Cited by 197 publications

References 73 publications

An Inverse Problem Study: Credit Risk Ratings as a Determinant of Corporate Governance and Capital Structure in Emerging Markets: Evidence from Chinese Listed Companies

An Inverse Problem Study: Credit Risk Ratings as a Determinant of Corporate Governance and Capital Structure in Emerging Markets: Evidence from Chinese Listed Companies

Capital structure of Chinese listed SMEs: an agency theory perspective

Institutional Ownership, Board of Directors and Yield Spreads in Long- and Medium-term Corporate Bonds and Sukuk

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