Does the power gap between a chairman and CEO matter? Evidence from corporate debt financing in China

This study investigates the effects of a power gap between a firm's chairman and CEO on corporate debt financing using data from Chinese listed firms with separate chairman and CEO positions. The empirical results show that enterprises with larger power gaps obtain more debt financing and have lower financing costs. In addition, the effect of the power gap on debt financing is more pronounced for firms with a worse external governance environment and internal control, and in more competitive industries. These findings are robust to a series of sensitivity analyses. Altogether, the results indicate that in China, due to its special institutional background and cultural situation, the size of the power gap between the chairman and CEO is an important factor in corporate governance and decision-making efficiency.