Firm leverage and employee pay: The moderating role of CEO leadership style

Balbinder Singh Gill, Jongmoo Jay Choi, Kose John

Research output: Contribution to journalArticlepeer-review

Abstract

We investigate how a CEO's leadership style moderates the relationship between leverage and average employee pay. We first show that the relationship between leverage and average employee pay is negative, consistent with the leverage disciplinary hypothesis. Next, we examine how CEO leadership style moderates this negative effect. We find that CEOs with more charisma reduce the disciplinary effect of leverage. The humane CEOs of companies with more debt sharpen the disciplinary effect by paying their employees less for increased risk of job loss that comes with high leverage. An important policy implication is that CEO leadership style can influence the outcome of labor management negotiations regarding employee pay.

Original languageEnglish
Article number103382
JournalInternational Review of Financial Analysis
Volume95
DOIs
StatePublished - Oct 2024

Keywords

  • Capital structure
  • CEO leadership style
  • Corporate governance
  • Employee pay
  • Insolvency law
  • Labor negotiations
  • Leverage

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