Is chair-CEO generational difference a substitute governance mechanism to debt financing?

Abstract

Purpose – The purpose of this paper is to examine whether and how chair-chief executive officer (CEO) generational difference is related to debt financing. Design/methodology/approach – This paper adopts the pooled ordinary least squares and system generalized method of moments estimation procedures to analyze listed firms in Malaysia from 2013 to 2017. Findings – The results reveal that chair-CEO generational difference is negatively associated with leverage. The evidence suggests that substantial age gaps between the chair and CEO precipitate cognitive conflicts, which lead to better monitoring and control. This results in better governance and less information asymmetry, causing firms to depend less on debt as a board monitoring mechanism. The findings provide support to the theory posited in this paper on the substitutability of chair-CEO generational difference and debt financing. Originality/value – This is the first attempt to investigate the substitutability of chair-CEO generational difference and debt financing.

Keywords

• Age heterogeneity
• Chair-CEO generational difference
• Corporate governance
• Debt financing
• Leverage