Chairman-CEO Power Gap And Financial Behaviors And Economic Consequences

Top management team(TMT)order and efficiency is always a hot topic in the academic research.TMT power configuration is an important factor to TMT order and efficiency.But the existing research mainly focus on CEO and the whole TMT to explore the influence of executive power configuration on corporate strategy and organizational performance and ignore the power configuration between chairman and CEO.In China,chairman and CEO are the most basic TMT for the listed companies,so whether the power configuration between chairman and CEO can impact the whole TMT order and efficiency is an important issue.This paper attempts to examine the power configuration and interactive relationship of the chairman and CEO,and its impact on the economic behaviors of the enterprise.According to the theory of corporate governance,the position power of chairman is higher than CEO,in reality,however,the power gap between chairman and CEO are influenced by other dimensions of power,such as ownership power,expert power and prestige power.There are two reasons.First,individual power not only comes from the position in the organization,it also related with personal ability,experience,prestige and status in society.Second,based on China’s Confucian culture and the high-power distance society,the interaction between individuals in the organizations not only depends on the position,it also depends on other power features(such as social status,etc.).Thus,based on China’s special cultural background,we split the power configuration between the chairman and CEO,and construct the power gap from multiple dimensions,such as ownership power,expert power and prestige power.And we test the influence of chairman-CEO power gap on enterprise financial behaviors and performance,thus effectively answer the question that effects of power configuration between chairman and CEO on team effectiveness.According to statistical data,the companies that the chairman and CEO are separated accounted for more than 70% of the listed companies in China.The situation provides a good opportunity and a large sample research data to learn the power configuration and distribution in China’s TMT.On the basis of related theory and research,the purpose of this study includes:(1)Build the power gap index from three dimensions of ownership power,expert power and prestige power in the Chinese culture;(2)Explore the impact of chairman-CEO power gap on corporate financing behavior;(3)Explore the impact of chairman-CEO power gap on enterprise investment behavior;(4)Explore the impact of chairman-CEO power gap on enterprise performance.The financing and investment are the most important financial behaviors of enterprises and directly concern the future development of the enterprise.The enterprise performance is the result of the economic behaviors.So,we focus on the financing,investment and corporate performance to test the economic consequences of the power gap.Firstly,we collect the power characteristics data of chairman and CEO from 2009 to 2016 and introduce the overall circumstances of individual power characteristics of chairman and CEO and the power gap.Finkelstein(1992)divides power into four dimensions based on power source: structural power,ownership power,expert power and prestige power.Due to the structural power gaps between the chairman and CEO are almost same in the companies that board chair and CEO are separated,so we focus on the ownership power,expert power and prestige power.Overall,there are different power gaps between chairman and CEO in different companies.The prestige power gap is the largest and the expert power gap is the smallest.The statistics show that it is meaningful to test the implication of power gap between chairman and CEO.This part tries to give readers preliminary and overall understanding of power characteristics of chairman and CEO and build the key variable—power gap.Secondly,this paper focuses on the special culture of the high-power distance in China,and examines the implications and consequences of the power gap between chairman and CEO in the companies that chairman and CEO are separated.The result show that power configuration of chairman and CEO has an important impact on team effectiveness.Power gap between chairman and CEO can keep the team order,reduce conflict within the team,promote team information sharing,and improve the efficiency of team decision-making and governance,eventually improve enterprise’s financial efficiency and performance.The results are as follws:(1)Power gap between chairman and CEO is positively and associated with debt financing scale and negatively associated with debt financing cost.And the relationship between power gap and debt financing is more significant in enterprise that internal quality control is weaker,external governance is weaker and industry competition is fierce.(2)Power gap between chairman and CEO is positively and significantly associated with investment efficiency.And the relationship between power gap and investment is more significant when the chairman receive compensation from the listed companies and government intervention is less.(3)Power gap between chairman and CEO is positively and significantly associated with operating performance.And the relationship between power gap and operating performance is more significant in enterprise that ownership structure is relatively dispersed,external governance environment is weaker and state-owned enterprises.This paper tries to provide theoretical value and evidence for the establishment of TMT and for better understanding TMT decision-making.This paper has the following academic and realistic contributions.The academic contributions of this paper are as follows:(1)Although the study about TMT power configuration has made some achievements,but mainly based on specific industry for small sample study and the conclusions are different.Lacking a large sample study,so the conclusions is difficult to apply and spread to all enterprises.This paper collects a large sample data from 2009 to 2016,and focus on the main decision makers-chairman and CEO,so we can obtain a general conclusion.(2)Power is a social attribute.That means the characteristics and sources of power are different in different social cultures.How to build the objective and reasonable executive power under Chinese social culture is a major challenge.According to existing executive power metrics and Chinese specific social background,we selected three indicators to describe the ownership power,expert power and prestige power.This paper can enrich executive power measure and provide some reference value.(3)The existing research examines the influence of population characteristic heterogeneity between the chairman and CEO on earnings management,internal control quality and enterprise performance.This paper focuses on the role and power distribution between chairman and CEO and enrich the research on TMT.(4)Corporate governance literatures focus on CEO duality or not,while ignore the specific power characteristics of chairman and CEO in the companies that chairman and CEO are separated.This paper further expands the literatures of company governance mechanism.The results of this paper have vital referential significance for the listed companies,investors and government.(1)For listed companies.This paper provides the reference for power configuration of TMT members.(2)For investors.This paper helps investors to better identify the team efficiency.(3)For government.This paper provides new ideas on reasonable selection and power configuration of top leaders.