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Leadership structure and the value of debt contracts: Evidence from the Canadian market |
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| Authors: | Robert Mathieu Ping Zhang |
| Affiliation: | a School of Business and Economics, Wilfrid Laurier University, Canada b Kenneth G. Dixon School of Accounting, University of Central Florida, United States c Joseph L. Rotman School of Management, University of Toronto, Canada |
| Abstract: | This paper investigates the impact of a firm's leadership structure on its ability to generate value from loans by examining the market reaction to the disclosure of Canadian bank credit agreements. Two leadership structures are considered in this paper. In the first scenario, the positions of Chief Executive Officer and Chair of the Board are held by two different persons (denoted as a Separate CEO-Chair structure); in the second scenario, both positions are held by the same person (denoted as a Combined CEO-Chair structure).We observe a stronger market reaction to the announcement of bank credit agreements when firms have a Separate CEO-Chair structure (relative to a Combined CEO-Chair structure). This stronger market reaction for firms with a Separate CEO-Chair structure suggests that the division of CEO and Chair of the Board responsibilities between two people enhances a firm's ability to generate value from its loans. This conclusion is further supported by the fact that the observed market reaction for firms with a Separate CEO-Chair structure is even greater when the size of the board of directors is small. Our results also indicate that bank monitoring activities are more valuable for firms with a Combined CEO-Chair structure and no institutional shareholder. |
| Keywords: | Leadership structure Governance Debt contract Credit aggreement |
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