The Effect of CEO Power on Corporate Debt Financing Costs: Integrating of Agency Theory and Stewardship Theory

Abstract

This paper assesses the impact of Chief Executive Officer (CEO) power on corporate debt financing cost. Thus far, most studies have addressed the relationship between CEO power and debt financing from the agency theory, while fewer have applied the stewardship theory. In this paper, we apply both theories to analyze CEO power in terms of the debt financing cost data from a sample of A-share listed companies in China from 2008 to 2019. I found a significantly negative correlation between CEO power and corporate debt financing cost. This was mainly attributed to the structure power of CEO affected by the board, to the ownership power created by shareholding, and to the prestige power produced by higher education. I also found that either CEOs’ financial background or the companies’ high-quality audits could strengthen this negative correlation. These research findings provide some support for stewardship theory and agency theory.