Effect of Corporate Governance on Relationship between CEO Power and Cost of Debt

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Duangnapa - Sukhahuta Ravi Lonkani Chaiwuth Tangsomchai Jomjai Sampet


The purpose of this study is to examine the effect of corporate governance on relationship between CEO power and cost of debt of Thai listed firms in the Stock Exchange of Thailand (SET) and the Market Alternative Exchange (mai) during 2010-2016. This study used the agency theory to predict the influence of CEO power on variation in cost of debt. According to the agency theory, CEOs perform their duties on behalf of shareholders and the firm’s goal is to maximize shareholders’ wealth. Due to agency conflicts, powerful CEOs do not maximize shareholders’ value and do what they prefer, making the firms face low performance and have bad reputation. Thus, the agency problem causes the firms to face high cost to borrow money. This study provides evidence that high CEO power exacerbates agency costs and thus the firm faces high cost of debt. The results of the study show that, the CEO Power has significantly positive association with cost of debt. In contrast, corporate governance has significantly negative relationship with to the cost of debt.  In addition, corporate governance as the moderating role has a significant negative influence on the relationships between the CEO Power and the cost of debt. Using sub-group analysis of high and low corporate governance to test the relationship between CEO power and cost of debt, the results show interesting outputs. For high corporate governance firms, the CEO power is not associated with cost of debt. Conversely, for low corporate governance firms, the CEO power is significantly and positively associated with cost of debt. This study contributes to Thai organizations by proving that CEO power can affect the cost of debt. It implies that if a CEO does not serve as a chairperson on the board, the organization will have a better monitor system. As a result, the agency cost will be reduced and the cost of debt will be lower. In addition, CEO power of the firms which have bad governance system can enlarge the cost of debt.


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