Corporate Governance, CEO Power and Capital Structure Decisions of Companies: A Principal Component Analysis Approach

The main purpose of this study is to investigate the effect of corporate governance on the relationship between CEO power and capital structure decisions in listed companies in Tehran Stock Exchange. For this purpose, principal component analysis method was used to measure CEO power. The research hypotheses were tested on the 106 companies over a period of 8 years from 2011 to 2018 using multivariate regression models and panel data alignment. The results of linear models of research show that there is a negative and significant relationship between CEO power and book value leverage. The results of nonlinear models indicate that there is a significant nonlinear (U-shaped) relationship between CEO power and short-term leverage. Also, there is a significant nonlinear (U inverse) relationship between CEO power and long-term leverage. The results of the study of the effect of institutional shareholders on the relationship between CEO power and capital structure decisions indicate that institutional shareholders have a negative and significant moderating effect on the positive linear relationship between CEO power with book value leverage and short-term leverage. Also, institutional shareholders cause the nonlinear relationship between CEO power with market value leverage and short-term leverage to be change from inverted U to U-shaped. In the case of long-term leverage, the results also show that institutional shareholders cause the negative relationship between high power of the CEO and long-term leverage may be positively changed.