Review of Managerial Science

, Volume 12, Issue 3, pp 593–620 | Cite as

Nonlinearity between CEO power and firm leverage: evidence from the threshold model

  • Qaiser Munir
  • Tongxia Li
Original Paper


This paper examines the non-linearity between Chief Executive Officer (CEO) power and firm leverage using a sample of 295 selected small and medium-sized enterprises listed on China Shenzhen Stock Exchange SMEs Board during the period 2009–2013. Specifically, a threshold estimation technique developed by Hansen (J Econ 93(2):345–368, 1999) is applied to investigate whether firms with powerful CEO use a sub-optimal leverage. The results confirm that there is a double-threshold effect exist and suggest an inverted U-shaped relationship between CEO power and firm book value-based leverage. Thus, these findings reveal that the distribution of decision-making power within firms can affect financing decision are made and CEOs with higher ability to exercise decision-making power tend to use lower leverage to pursue their own benefits.


Firm leverage CEO power Threshold model SMEs China 

JEL Classification

G30 G34 M12 



The authors would like to thank the two anonymous referees for their valuable comments and insightful suggestions and the editor, Professor Wolfgang Kürsten, for his guidance and encouragement. These recommendations substantially improve the paper. Any remaining errors are our own.


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Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  1. 1.Faculty of Business, Economics and AccountancyUniversiti Malaysia SabahKota KinabaluMalaysia

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