مدیر عاملان قدرتمند، تامین مالی بدهی و لیزینگ در شرکت های کوچک و متوسط چینی Powerful CEOs, debt financing, and leasing in Chinese SMEs: Evidence from threshold model

1. Introduction Since the seminal work of Modigliani and Miller (1958), several theories have been developed explaining the determinants of capital structure, including the agency theory (Jensen & Meckling, 1976) and the trade-off theory (Miller, 1977). Building on these theories, previous empirical studies have provided evidence that firm- and industry-level characteristics play important roles in shaping firms’ financing decisions. The majority of existing evidence is based on firms in industrialised countries with little attention to emerging markets. Some of financial economists argue that the previously identified factors in the developed countries studies are also crucial in developing countries (e.g., Booth, Aivazian, Demirgüç-Kunt, & Maksimovic, 2001; Demirgüç-Kunt & Maksimovic, 1999). Therefore, a growing number of recent studies have intensively examined whether the classic theories as well as evidence derived from developed countries also work in emergingmarket countries. However, to date, little attention has been paid on investigating the role of individual executives in affecting corporate financing policies, particularly in developing countries (Jiraporn, Chintrakarn, & Liu, 2012; Liu & Jiraporn, 2010). This is surprising given the capital structure decision is one of the main decisions made by executives (Bertrand & Schoar, 2002). Thus, this study aims to examine the effects of CEO characteristics on firms’ financing decisions, specifically, the relationship between CEO power and Chinese SMEs’ capital structure. The imperfect alignment of interests between executives of the firm and owners of the firm can lead to agency costs (i.e. type I agency problem). For example, CEOs may be subject to self-serving behaviours such as using corporate resources to enhance their own benefits instead of investing in good investment projects that can benefit shareholders. One prescription for alleviating such agency problem is to use more debt-type financing, because interest payments impose constraints on CEOs’ control over the free cash flows (Jensen, 1986). In addition, the use of debt-type financing can increase the probability of bankruptcy and job loss. As a result, the additional risk might motivate the CEO to work efficiently (Grossman & Hart, 1982). However, CEOs with more power might manipulate the level of debt ratio to avoid the potential risk as well as constraints. The contradict arguments suggest a non-monotonic association between CEO power and capital structure. A firm with less powerful CEO tends to use more debt or high leverage. However, as CEO having more power and beyond a certain threshold, he/she might impose significant influence on firm’s financing decisions, thereby using less debt-type financing. In line with this, previous study by Chintrakarn, Jiraporn, and Singh (2014) shows an inverted U-shape relationship between CEO power and leverage in US firms. The present paper provides new evidence that sheds light on the impact of CEO power on capital structure through employing the dataset outside US. Specifically, we explore whether there exist threshold levels of index in the CEO power-capital structure relationship. To this end, this paper uses the instrumental variables threshold regressions approach proposed by Caner and Hansen (2004). This method does not split the sample of firms according to some predetermined rule, but allows the data to determine which regime a firm belongs to. Apart from debt, our study also takes into account lease financing. Lease is perceived as a fixed-claimed financing which can help reduce agency costs by forcing pay-out of free cash as well as exposing greater personal risk, thereby ensuring CEOs to use corporate resources more efficiently and work harder (Mehran, Taggart, & Yermack, 1999). In addition, treating leases as taking a similar role to debt is in line with the lease-debt substitutability theory (Minhat & Dzolkarnaini, 2015).