The effect of CEO power on bond ratings and yields

Yixin Liu, Pornsit Jiraporn

Research output: Contribution to journalArticlepeer-review

156 Scopus citations


We argue that executives can affect firm outcomes only if they have influence over crucial decisions. This study explores the impact of CEO power or CEO dominance on bond ratings and yield spreads. We find that credit ratings are lower and yield spreads higher for firms whose CEOs have more decision-making power. To further investigate why bondholders are concerned about CEO power, we show that powerful CEOs tend to maintain an opaque information environment. Bondholders demand higher yields because it is difficult for them to monitor managers in firms with powerful CEOs. Taken together, the results suggest that bondholders perceive CEO power as a critical determinant of the cost of bond financing.

Original languageEnglish (US)
Pages (from-to)744-762
Number of pages19
JournalJournal of Empirical Finance
Issue number4
StatePublished - Sep 2010

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics


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