Management Decision

Does capital structure mediate the link between CEO characteristics and firm
performance?
Muhammad Akram Naseem, Jun Lin, Ramiz ur Rehman, Muhammad Ishfaq Ahmad, Rizwan Ali,
Article information:
To cite this document:
Muhammad Akram Naseem, Jun Lin, Ramiz ur Rehman, Muhammad Ishfaq Ahmad, Rizwan Ali,
(2019) "Does capital structure mediate the link between CEO characteristics and firm performance?",
Management Decision, https://doi.org/10.1108/MD-05-2018-0594
Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

Permanent link to this document:

https://doi.org/10.1108/MD-05-2018-0594
Downloaded on: 03 April 2019, At: 12:41 (PT)
References: this document contains references to 86 other documents.
To copy this document: permissions@emeraldinsight.com
Access to this document was granted through an Emerald subscription provided by emerald-
srm:122143 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald
for Authors service information about how to choose which publication to write for and submission
guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company
manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as
well as providing an extensive range of online products and additional customer resources and
services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the
Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for
digital archive preservation.

*Related content and download information correct at time of download.

 The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0025-1747.htm

CEO
Does capital structure mediate the characteristics
link between CEO characteristics and firm
performance
and firm performance?
Muhammad Akram Naseem
School of Management, Xi’an Jiaotong University, Xi’an, China and
Received 24 May 2018
Lahore Business School, The University of Lahore, Lahore, Pakistan Revised 29 January 2019
Jun Lin Accepted 8 February 2019

School of Management, Xi’an Jiaotong University, Xi’an, China, and

Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

Ramiz ur Rehman, Muhammad Ishfaq Ahmad and Rizwan Ali

Lahore Business School, The University of Lahore, Lahore, Pakistan

Abstract
Purpose – The purpose of this paper is to empirically capture the impact of a chief executive officer’s
(CEO) personal and organizational characteristics on firm performance in the context of a developing
country and to explore whether capital structure mediates the relationship between CEO characteristics
and firm performance.
Design/methodology/approach – In order to test the hypothesized model, CEO duality, tenure and
personal characteristics (age, gender and education) were taken as explanatory variables to study their
impact on firm performance. Data were collected from 179 Pakistani companies from 2009–2015.
The collected data were processed via panel data regression analysis under fixed effect assumptions.
Findings – Results show that CEO duality has a negative impact on firm performance and that a CEO with a
dual role is more inclined toward debt financing. Moreover, a CEO with a longer tenure tends to be
opportunistic and prioritize his/her personal interest while making strategic financial decisions, thus creating
agency costs for the firm. Furthermore, CEO characteristics like age, gender and education have significant
effects on firm financial decisions and firm performance. Finally, the debt and equity ratio partially mediates
the link between CEO characteristics and firm performance.
Research limitations/implications – The findings of this study have limited generalizability due to the
specific nature of the sample characteristics.
Originality/value – To the best of the authors knowledge, this study is the first to explore the impact of
CEO characteristics on capital structure and firm performance. This work is also the first to explore the
mediating role of capital structure in the relationship between CEO characteristics and firm performance by
using Pakistani data.
Keywords Firm performance, Capital structure, CEO characteristics
Paper type Research paper

Introduction
Top executives govern firms, and among them, chief executive officers (CEOs) play a vital
role in the firm’s strategic decision making. In the past decades, the responsibilities of CEOs
have significantly increased, increasing their compensation packages as well (Boschen and
Smith, 1995). Due to the emerging concept of corporate governance (CG) over the last
decades, CEOs nowadays must engage in the firm's decision-making process especially on
financial matters (Boal and Hooijberg, 2000). In certain firms, the CEO makes financial
decisions (Eisenhardt, 1989), whereas, in others, firms’ financial decisions are the outcome of
the consent of top executives (Beasley, 1996), though it is difficult to achieve consensus due
to the diverse opinions of all executives.
Although the literature has addressed the impact of various board characteristics on
capital structure and firm performance in developed countries like the UK (Liu, 2016) and Management Decision
the European Union (Bancel and Mittoo, 2004; Rodriguez-Fernandez et al., 2014), the © Emerald Publishing Limited
0025-1747
findings are not yet converged. Meanwhile, some other studies on the impact of CEO DOI 10.1108/MD-05-2018-0594
 MD characteristics on capital structure have been conducted in developed economies (Bertrand
and Schoar, 2003; Custódio and Metzger, 2014; Dalton et al., 1998). Agency theory also
highlights the importance of CG in a firm’s decision making. Managers often make decisions
to satisfy their self-interest. For example, managers may not always prefer to adopt debt
choices that are value-maximizing for shareholders, as suggested by pecking order theory.
Instead, they prefer to limit the debt utilization for their benefits. This conflict creates
agency cost and ultimately leads to poor firm performance.
In developing economies, the CG structure is in a rebuilding phase, during which CG
codes have become increasingly comprehensive over the past few decades. Interestingly, the
current developments in CG do cover not only the financial aspects, but also the ethical
paradigms involved in the decision making (Cuomo et al., 2016). In the recent literature, the
roles of CG practices and capital structure decision have also been investigated in the
context of emerging economies (Chang et al., 2014; Mokhova and Zinecker, 2014). However,
Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

these studies only examined the direct associations between some CG variables with capital
structure decision (Ahmed Sheikh and Wang, 2012, 2013). Moreover, very few studies have
examined CEO characteristics as a CG variable as well as the impacts of such characteristics
on capital structure decision. Although developing countries are more prone to agency
problems due to ineffective CG structures, more studies on CG practices and capital
structure decisions have been conducted in developed countries (Friedman, 1999).
Therefore, examining the role of managers/CEOs in a firm’s strategic financial decision
making and its impact on the performance of a firm in a developing country context is
worthy of further investigation.
In the literature, many works have explained the relationship between CEO
characteristics and firm performance. However, no study has examined how financial
decision making mediates the association between CEO characteristics and firm financial
performance. According to Denis (2001), CEOs often protect their interests while making
financial decisions about firms. This practice is very common in developing countries,
where CG practices are yet to be implemented in their true spirit. Therefore, we must be able
to address the following questions:
RQ1. What kinds of characteristics amplify the CEO decision about capital structure?
Furthermore, we must determine:
RQ2. How strategic decision reflects on a firm’s financial performance?
These are the main research questions of the current study.
Considering the gap in the literature and especially the scarcity of research related to
developing countries, the objectives of this study are as follows: to determine the effects of
CEO duality, tenure and personal characteristics on firm performance; and to test the
mediating effect of capital structure on the link between CEO characteristics and firm
performance. The sample consists of 179 (32 percent) firms from the financial and
non-financial sectors that are listed in the Pakistan Stock Exchange (PSX). Data related to
CEO characteristics, accounting measures and capital structure are taken from the firms’
audited balance sheets, annual reports and various periodicals of the State Bank of Pakistan
(SBP) for the period 2009–2015.
In this study, we argue that Pakistan is an appropriate setting to investigate the
mediating role of financial decision making to explain the link between CEOs characteristics
and firm financial performance. This is because the CG system in Pakistan is possibly less
evolved than those in Western countries, such as Germany or Japan. Pakistan has been
recently added into the emerging market index by Morgan Stanley Corporation
International and is considered one of Asia’s main emerging capital markets, attracting
ever-growing global investments in the past years. Regarding institutionalization,
 regulatory framework and legal background, the emerging economies are far more different CEO
from those of the developed world (Dittus and Prowse, 1999). The social, cultural and characteristics
historical characteristics of a country also play a vital role in the development of CG and firm
practices. In this context, Pakistan is a unique case because it carries the legacy of being
under British colonial rule for over 200 years. Therefore, it inherited a British-style performance
institutional and regulatory framework in the form of the Companies Act. The mainstream
public companies in Pakistan have a one-tier board structure and a concentrated ownership
pattern with the family or holding company ownership.
Like most other emerging markets, the Pakistani capital market features high family
ownership concentration (Zaidi and Aslam, 2006), weak information disclosure and investor
protection and underdeveloped markets for corporate control (La Porta et al., 2000).
In family owned firms, the family’s head is usually the Chairman of the Board, while the
controlling groups either control the firms directly or employ an outsider CEO in some
Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

instances. In the case of family owned firms, the professional expertise and experiences of
the appointed board members are ignored most of the time due to their strong ties with the
family (Westhead and Cowling, 1998). Several institutional and regulatory initiatives have
been taken in the recent past to improve the CG environment in Pakistan, as a result of epic
corporate scandals in the UK and the USA. The main regulatory bodies in Pakistan, such as
the Security and Exchange Commission of Pakistan and the SBP, have played vital roles in
introducing CG reforms in the country. The first code of CG in Pakistan was issued in 2002
and then further revised in 2012. Moreover, the Pakistan Institute of Corporate Governance
was established in 2004 to increase awareness of good governance practices, develop
professionalism and encourage the engagement of corporate bodies and individuals in
ensuring efficiency.
The findings of the current study support the agency theory, which posits that CEO
duality is not valuable in developing economies. Further, the stewardship perspective is also
on the weaker side as the corporate boards do not hire CEOs for longer periods, thus
affecting their effective decision making and, ultimately, firm performance. The main
empirical finding of the present study (i.e. the personal characteristics of a CEO have an
impact on firm performance) contributes to the CG literature in the context of developing
countries. Firms that have a CEO possessing a formal business, management and financial
educational background also perform better than their counterparts. The most important
contribution of this study is that the capital structure decision mediates the relationship
between CEO characteristics and firm performance.
The rest of the paper is organized as follows. The second section consists of the literature
review and hypothesis development, while the third section explains the methodology.
The fourth section covers the data analysis and interpretation. The fifth section presents the
discussion and conclusions of this study.

Theoretical background and hypothesis development

The role of CEO characteristics in firm performance has been extensively studied in the past
three decades by several studies that asked two key questions: “Do CEOs affect firm
performance?” and “How to do CEOs influence firm performance?” These questions are best
addressed with an important theoretical perspective, namely, upper echelons theory (UET)
(Hambrick and Mason, 1984). The core concept of UET is that CEOs experiences, values and
personalities affect their choices (Hambrick, 2007) and, consequently, firm performance
(Hambrick and Mason, 1984). Several scholars presented mixed findings in explaining
different CEO characteristics and their effects on firm performance. Past studies concluded
that CEO tenure is positively (McClelland et al., 2010) or negatively (Nadkarni and
Herrmann, 2010) related to firm financial performance. Some even reported that CEO tenure
is not related to a firm’s firm financial performance (Balkin et al., 2000).
 MD Further, CEO’s age is found to be either positively (Fischer and Pollock, 2004) or
negatively (Zhang and Rajagopalan, 2010) related to firm performance. Mackey (2008)
examined the variations in firm performance based on CEO heterogeneity and
demonstrated the significant impact of CEOs on corporate performance. The research of
Bertrand and Schoar (2003) is considered as the pioneering study related to the impact of
CEOs’ characteristics on firm value, considering the age and education of the CEOs.
Martin et al. (2009) further investigated the impact of the gender of CEOs. Krishnan and
Parsons (2008) argued that, in private firms, the CEO’s role in ensuring the growth of the
organization is more sensitive than that in public firms.
The other important aspect of CEO characteristics is the choice of financing for the firm.
The agency theory framework explains the notion of agency conflicts within a firm while
determining the capital structure, that is, the corporate performance weakens in the presence
of significant agency problems ( Jensen and Meckling, 1976). A number of researchers
Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

have documented the importance of CG practices and separation of ownership in analyzing

the choices of finances for the firm (Berger et al., 1997; Garvey and Hanka, 1999; Harvey et al.,
2004; Jensen, 1986; Morellec, 2004; Wald and Long, 2007; Zwiebel, 1996). Moreover, pecking
order theory suggests that, where a firm grows quickly, there is a trend of high debt-equity
ratios resulting from a CEO’s reluctance to issue equity (Frank and Goyal, 2003). A serious
selection issue has also been reported with regards to the source of funding among retained
earnings, debt and equity. The equity financing is found to be riskier than debt financing due
to the higher expectation of equity holders (Lewis and Tan, 2016).
Some theoretical studies have shown that CEO characteristics may affect firm
performance. For example, female CEOs may cause lower leverage that can lead to a
distortion of the capital allocation process, because female CEOs are more risk-averse than
their male peers (Faccio et al., 2016). Older CEOs are also risk-averse and reluctant to take
risky opportunities, which leads to poor firm performance (Wang et al., 2016). Meanwhile,
CEO education has also been found to have a strong effect on firm performance and
risk-taking behavior. This attribute influences the choice concerning capital structure as
well (King et al., 2016). Overall, CEO characteristics are strongly associated with firm
efficiency and cause performance variability.
In light of the aforementioned theoretical frameworks, it would be interesting to
investigate how the decisions of CEOs regarding financing choices mediate the relationship
between CEO characteristics and firm performance.

CEO duality, capital structure and firm performance

The relationship between CEO duality and firm performance is explained with the help of
two main competing theories in the literature. First, the monitoring role of independent
boards is used in the theoretical framework of agency theory in order the limit managerial
entrenchment and opportunism ( Jensen and Meckling, 1976).
Some organizational and management theorists have argued that firm performance can
increase with CEO duality. Stewardship theory (Donaldson and Davis, 1991), for example,
suggests that owners can protect their interests by employing joint leadership structure in a
firm. In contrast to agency theory’s assumption that CEOs are opportunistic by nature,
stewardship theory posits that intrinsic motivation, satisfaction from achievement, respect,
reputation and recognition motivate CEOs to enhance the firm value. Referring to the
advanced economy perspective, Fosberg (2004) argued that CEO duality could effectively
increase firm debt although the reported relationship is not highly significant. In contrast,
Abor (2007) reported a positive and significant association between CEO duality and
leverage. Bokpin and Arko (2009) also reported a positive but insignificant association
between leverage and CEO duality, arguing that, in the case of CEO duality, firms prefer to
use debt over increasing equity.
 Meanwhile, CEO duality impairs firm performance through managerial entrenchment, CEO
which can be improved with the help of a vigilant board. Evidently, in the presence of an characteristics
independent board, the relationship between CEO duality and performance is positive and firm
(Duru et al., 2016). Amidst a complex business environment, top management has its values and
objectives. Management theories posit that their values have great impacts on their strategic performance
decisions, which is why it is difficult to gauge the values of CEOs (Gupta et al., 2018).
Another theoretical view is that CEO duality creates opportunities to preserve one’s
self-interests given that CEOs come up with major decisions to maximize their wealth instead
of the shareholders’ ( Jensen, 1993). Thus, CEO duality is an indication of poor governance in
both agency theory and managerial power theory. This theoretical perspective has been
empirically examined in the context of developing countries, wherein CG systems are typically
weak and underdeveloped. In the existing literature, studies have found mixed results for the
Pakistani market regarding the association between CEO duality and firm performance,
Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

including positive (Ahmed Sheikh and Wang, 2012), negative (Gohar and Batool, 2015;
Sheikh et al., 2018; Singh et al., 2018) or no relationship (Luqman et al., 2018; Yasser et al., 2015).
Moreover, Chen et al. (2005) reported that CEO duality gives more power to the CEO, making it
difficult for the board of directors to challenge his/her decisions and replace him/her. This is
why CEO duality creates financial distress for the firms. The different results presented above
are not surprising given that CG varies across companies and countries.
Moreover, in developing countries, investor protection is quite costly due to the poor
governance of institutional infrastructure. Hence, considering the literature and a few
theoretical perspectives, we present the following hypotheses:
H1a. CEO duality has a negative impact on firm performance.
H1a0. Debt to equity ratio mediates the link between CEO duality and firm performance.

CEO tenure, capital structure and firm performance

CEO tenure is another very important CEO attribute influencing firm performance. Adams
et al. (2005) studied the impact of CEO power on stock returns using tenure as a proxy for
power and reported an insignificant association between CEO tenure and stock returns. As
the tenure of CEOs increases, they are more in a position to communicate and disseminate
the information about the firm. CEOs with a longer tenure in an organization develop strong
social networking ties with different financial sources by their information power, and this
influences their capital structure choices for the organization (Hartnell et al., 2016). A longer
tenure helps a CEO prove his/her expertise in either a boom or depression period and
maintain the firm’s debt to equity ratio. The duration of CEO tenure might affect the
decision making, which, in turn, influences shareholders’ wealth. For instance, CEOs
nearing retirement might be evaluated based on the current measures of performance
as these indicators are historical choices for the investors, whereas CEOs in the earlier years
of their contract might be best examined based on market-based performance indicators
(those that affect the prospects of the firm) and their effects on shareholders wealth.
Career concerns matter to everyone as these affect one’s decision making and performance.
CEOs, who also have career concerns, are liable for their decisions. In the literature, the “tenure”
of CEOs has been used as a proxy for career concerns. CEO tenure and the risk-taking intent are
linked (Chen, 2015; Fu and Li, 2014) because newly appointed CEOs are more anxious about
their future and survival in the firm than those who have been serving for a longer period.
About this, CEO tenure is expected to have an impact on the capital structure. Dismissal from a
job is a vital concern of a CEO, and it not only leads to the loss of one’s current job, but also
minimizes his/her future career options (Brickley et al., 1999). Iossa and Rey (2014) argued that
CEOs with more career concerns are likely to overinvest in uncertain projects.
 MD Furthermore, they empirically observed that the longer the CEO tenure, the larger the
firm’s investment. Long tenure is vital in maximizing the true abilities of a CEO. Therefore,
we propose the following hypotheses:
H2a. CEO tenure has a positive impact on firm performance.
H2a0. Debt to equity ratio mediates the link between CEO tenure and firm performance.

CEO age, capital structure and firm performance

The age of a CEO is another important demographic indicator of firm performance, and
various researchers used it as a proxy for different indicators, such as maturity and
confidence (Malmendier et al., 2011; Serfling, 2014). As age can be used as an alternative
for different traits and levels of cognitive development, we can expect that age may either
Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

positively or negatively affect CEOs’ financial decision making. The young CEOs prefer to
utilize more debt, whereas the older ones tend to have less debt, implying that younger
CEOs are not afraid to make bold and risky financing decisions given their preference for
risky financial strategies (Hambrick and Mason, 1984; Serfling, 2014). In contrast, elder
CEOs have been found to be more conservative with regards to their financing decisions
(Bertrand and Schoar, 2003). Young CEOs are more encouraged and passionate to achieve
certain individual and organizational landmarks (Bertrand and Schoar, 2003). A CEO’s
age may also affect his/her propensity to engage in risk-taking behavior. In particular,
elder CEOs invest less in research and development activities and adopt less risky
investment policies. Therefore, younger CEOs have greater ability to push the corporation
to be a more profit-oriented firm. Serfling (2014) argued that risk-taking behavior
decreases as the CEO’s age increases and he/she becomes more conservative in their
investment policies. Therefore, we propose that the CEO age has a significantly positive
effect on a firm’s financial performance.
Older CEOs are observed to be more conservative regarding financing decisions
(Bertrand and Schoar, 2003). Therefore, we propose the following hypotheses:
H3a. CEO age has a positive impact on firm performance.
H3a0. Debt to equity ratio mediates the link between CEO age and firm performance.

CEO gender, capital structure and firm performance

CEO gender is an important demographic characteristic that should be considered in
exploring the impact of CEO characteristics on firm performance (Frank and Goyal, 2007).
In various disciplines, “gender” has been studied from a different perspective. Psychology
studies paid more attention to societal differences in gender as compared to management
studies which focus on the difference in leadership styles. In the corporate finance literature,
gender has been examined in the context of financial decision making and its impact of firm
performance, as in the current study. The biological and societal differences might affect the
risk-taking capacity and confidence levels between males and females (Sapienza et al., 2009).
Past empirical studies support the argument that gender has an impact on financial
decisions and firm performance. Faccio et al. (2016) analyzed 21 countries and reported
the significant impact of having female CEOs on debt utilization, further reporting that the
firms with female CEOs are less volatile and have better performance than their competitors
in the short run. Graham et al. (2013) reported that female CEOs utilize less debt compared
with male CEOs, and similar findings have also been presented by Graham and Leary
(2011). Meanwhile, Frank and Goyal (2007) reported that the impact of gender on debt
utilization is insignificant because financing decisions jointly made and not just individual
choices. Risk aversion varies between male and female CEOs, along with other demographic
 characteristics (Bertrand and Schoar, 2003). Female CEOs are more scrutinized than male CEO
CEOs, and some have implied that female CEOs received more favor than male peers. characteristics
In reality, female CEOs face additional challenges and threats from active activist investors and firm
(Gupta et al., 2018). Female CEOs are more risk-averse than male CEOs that is why gender
does matter to reduce the risk-taking behavior (Palvia et al., 2015). performance
Finance-related decision making varies between men and women, and this can be
attributed to the difference in the levels of overconfidence between them. Barber and Odean
(2001) found that females are less overconfident than males when they have to make
financing decisions. The risk-aversion intensity also varies between males and females
(Bertrand and Schoar, 2003; Laasch and Conaway, 2009). CEO gender and a firm’s financial
performance are linked. In particular, studies on the association between CEO gender and
firm performance (Khan and Vieito, 2013; Peni, 2014) reported that firms with female CEOs
perform better compared with the firms managed by male CEOs. Therefore, we propose the
Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

following hypotheses:
H4a. Male CEOs perform better than female CEOs.
H4a0. Debt to equity ratio mediates the link between CEO gender and firm performance.

CEO education, capital structure and firm performance

CEOs’ educational background is another personal indicator employed in this study to
examine the impact of CEOs’ demographic characteristics on their financing decisions and
firm performance. Education has a significant influence on CEOs’ ability to make sound
financing and investment decisions. In the literature, many studies reported a positive link
between CEOs’ financial education and their financing decisions (Barber and Odean, 2001;
Buyl et al., 2011). Moreover, CEOs’ financial education has a positive impact on a firm’s
financial performance. In any field, relevant education plays a vital role in one’s career.
CEOs’ financial education helps them in understanding financial problems and acting
accordingly to ensure a firm’s good performance. Bertrand and Schoar (2003) reported that
firms with CEOs having a specialized business education background tend to have high
financial performance. CEOs’ formal education affects their investing behaviors and
improves their firms’ financial health as well. King et al. (2016) argued that CEOs with
formal education tend to use more innovative business models in securing a strong financial
position in the market.
Many studies reported a positive link between CEOs’ financial education and their firms’
financial performance (Barber and Odean, 2001; Buyl et al., 2011). Their financial education
helps CEOs understand various financial problems and act accordingly in favor of the firm.
Moreover, Bertrand and Schoar (2003) reported that firms with CEOs having a specialized
business education background tend to have high financial performance. Therefore, we
propose the following hypotheses:
H5a. CEOs’ formal education has a positive impact on firm performance.
H5a0. Debt to equity ratio mediates the link between CEO formal education and firm
performance.

Data and methodology

Selecting the appropriate research paradigm for any study is very important (Burrell and
Morgan, 2017). In the social sciences, philosophical conjecture is the key for any research
topic. In the current study, the positivist paradigm is employed in developing the
hypothesis, which is then empirically tested by using statistical analysis. According to
Burrell and Morgan (2017) positivists “seek to explain and predict what happens in the
 MD social world by searching for regularities and causal relationships between its constituent
elements.” The deduction is connected to positivism and helps in establishing the causal
links between or among variables of the study to make a generalized conclusion (Saunders,
2011). Thus, the current study aims to implement the deductive rather than the inductive
approach. Therefore, using data from a sample of Pakistan listed companies, quantitative
research design is employed to examine the impact of CG on capital structure and firm
performance, and to examine whether capital structure mediates between firm performance
and different CG indicators.

Sample and data

The non-probability sampling scheme is applied in choosing the sectors and the companies.
Initially, six leading sectors of the Pakistan economy are selected according to their
Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

contributions to the total GDP as well as their market shares in the PSE. In the second stage,
the companies from selected sectors are chosen by their ability to retain their listing status
from 2009 to 2015. Of the 179 selected companies, 32 percent are listed in the PSX. The
number and proportions of the selected companies in the six economic sectors are presented
in Table I.

Measurement of variables
Debt to equity ratio is taken as an indicator of capital structure and used as a dependent
variable in this study. CEO characteristics are used as the explanatory variable, whereas the
proxies of size (i.e. total assets, number of shares and ownership type) are employed as
control variables. The operationalization of the dependent, explanatory and control
variables can be found in Table II.

Methodology
Our 2009–2015 data came from 179 firms belonging to six different sectors, which constitute
the panel data. Using panel data have its advantages as it combines the cross-sectional and
time elements. Gujarati (2014) stated that panel data provide “more information, more
variability, less collinearity among variables, more degrees of freedom and more efficiency.”
Panel data analysis can be performed by three different models, namely, pooled regression
model, the fixed effect model, the least square dummy variable model, and the random effect
model depending on the sampling scheme, nature of data and the assumptions imposed on
the model. Panel data analysis is conducted by referring to Dougherty, who suggested that
if the sample is not a random sample, then the fixed effect model must be applied. Hence,
under the fixed effect model, we assume that in both models, residuals and explanatory
variables are correlated, and the intercept varies for each sector.

No. of companies
Sector (sectoral percentage) Criterion for selection

Banking 25 (62%) 1. Sectors are selected on the basis of sectoral contribution in GDP
Insurance 6 (18%) 2. Firms from each sectors are selected on the basis of market
Cement 20 (83%) capitalization and remain listed on stock market during the
Fuel and energy 20 (65%) study period
Sugar 23 (66%)
Table I. Textile 85 (54%)
Sample distribution Total 179 (32%)
 No. Categories Variable name Abbreviations Type Description
CEO
characteristics
1. CEO duality CEOD Binary CEO duality“1” in case CEO is also Chairman, and firm
otherwise “0”
2. CEO CEO tenure CEOT Scale Duration of contract to serve the firm performance
characteristics
3. CEO age CEOA Scale CEO age in years
4. CEO gender CEOG Binary “1” if CEO of the firm is male otherwise “0”
5. CEO CEOEDU Binary “1” if CEO have financial education
qualification otherwise“0”
6. Capital Debt to equity DR Scale The ratio of total debt to total equity
structure ratio
7. Total shares TS Scale Total number of shares
8. Control Total assets TA Scale Total assets
Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

9. Ownership OWN Binary State own“1”; non-state own“0” Table II.

10. Capital CE Scale Ratio of capital expenditure to total assets Variables
expenditure identification/
11. Performance Tobin’s Q Tobin’s Q Scale Ratio of market value to total assets description

Empirical results and discussion

The empirical results are presented in the sub-sections consisting of the descriptive
statistics and analytical discussion.

Descriptive statistics and comparison

Table III presents the descriptive statistics of CEO characteristics in the form of minimum,
maximum average and standard deviation values. In our sample, 17 percent of the firms have a
Chairman who also performs the functions of the CEO, whereas, in 83 percent of the firms, the
CEO and Chairman are two different individuals. In comparison, in firms listed in Hong Kong,
41 percent of the firms possess CEO duality (Yan Lam and Kam Lee, 2008). Compared with CEO
duality in the USA, that in Pakistan is very low, although CEO duality in the former is also
declining (from more than 75 percent in the 1990s to just 50 percent in 2016) as the awareness of
separate ownership has increased in the past decades (Duru et al., 2016).
The range of CEO tenure is observed to be from one to five years, with an average of
1.4 years served in the current firm, indicating that firms are reluctant to hire CEOs for
longer periods. In comparison, Vintila and Gherghina (2012) reported an average CEO
tenure of 10 years for the firms listed in the New York Stock Exchange. The age bracket
of the CEOs is observed to be 32–69 years. The average age is 46 years, and the majority of
the CEOs fall in the age category of 40+ years. Compared with a developed country (USA),
the age bracket of CEOs is 34–75 years, with the average age being 55 years (Vintila and
Gherghina, 2012).

Variables Unit N Min. Max. SD

CEO duality % 1,253 0 1 –

CEO tenure Num. 1,253 1 5 0.73 Table III.
CEO age Num. 1,253 32 69 6.99 Descriptive statistics
CEO gender % 1,253 0 1 – of CEO characteristics,
CEO education % 1,253 0 1 – capital structure and
Debt to equity ratio Ratio 1,253 0.02 49.71 4.54 control variables over
Total shares Number in Millions 1,253 0.5 27,615 2,202.67 the sample time
Total assets Billion Rs 1,253 0.01 496.23 42.76 period
 MD Similarly, the average numbers of shares and total assets of all the firms over the sample are
US$0.5 and US$18bn, respectively. In 16 percent of the selected firms in the current study,
the CEO possesses specialized management educational qualification, e.g., Master of
Business Administration or Master of Public Administration. Only 23 percent of the firms
are run by female CEOs, which is on a lower side, as can be expected in a male-dominated
corporate sector where opportunities for females are very little, considering the traditional
background of Pakistan. This proportion is very low compared with the UK, where
41 percent of the firm CEOs are female (Pasaribu, 2017).
As our sample is based on non-probability sampling, the non-parametric Kruskal–Wallis
test is applied to explore whether the difference between the means of different board and
CEO characteristics and debt to equity ratios is sector variant or time variant. Furthermore,
for the robustness of the results, one-way analysis of variance by bootstrap is applied.
Bootstrap results are based on 1,000 simple samples.
Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

Table IV presents the results of the Kruskal–Wallis test and one-way ANOVA bootstrap
results. The findings of both tests are consistent. The χ2 and F-stat., along with their sig.
values suggest that characteristics CEO tenure and age vary depending on the sectors and
time. Capital structure and size indicators also vary among different sectors as well as in
different periods.

Panel data analysis and discussion

CEO characteristics (duality and tenure) and demographic characteristics (age, gender and
education) are employed as explanatory variables to determine their impact on the Tobin’s
Q ratio. To reduce the variations, natural log transformation is applied to the control
variables, such as total assets and total shares. Models 1 and 2 are observed to be significant
by F-stat. and their corresponding p-values. The regression coefficients and their
corresponding p-values in the parentheses indicate that, among various CEO characteristics,
gender, duality and education have a positive and statistically significant impact on firm
performance. Gender is employed as a binary variable, and the positive coefficient reveals
that the firms with male CEOs tend to perform better concerning the performance
indicators; however, the proportion of firms with female CEOs is very low. This result is
contradictory to the empirical evidence presented in the literature; wherein female CEOs
perform better than the male CEOs (Khan and Vieito, 2013; Peni, 2014). The main reason for
this result is the societal gender discrimination in developing countries. In countries like
Pakistan, females traditionally have fewer opportunities to excel in their careers, especially
in the corporate sector.
Furthermore, the biological and societal factors affect the confidence level of females.
Meanwhile, CEO duality is observed to have a negative impact on firm performance,
indicating that firms without CEO duality perform better than those with CEO duality.
This result supports the assumption of agency theory that CEOs are opportunistic most of
the time. In Pakistan, the CG code is in its evolutionary stage, and as such it does not yet
have a strong mechanism of board monitoring. Firms fail to limit the entrenchment and

Kruskal–Wallis test ANOVA (bootstrap) Kruskal–Wallis test ANOVA (bootstrap)

Variables χ2 (sig.) F-stat. (sig.) χ2 (sig.) F-stat. (sig.)

CEO tenure 33.61 (0.00) 10.00 (0.00) 16.19 (0.02) 2.22 (0.04)
CEO age 92.37 (0.00) 18.67 (0.00) 62.08 (0.00) 7.94 (0.00)
Table IV. Debt to equity ratio 84.05 (0.00) 27.336 (0.00) 51.145 (0.00) 5.178 (0.00)
Sectoral and time Total assets 173.56 (0.00) 16.140 (0.00) 12.052 (0.06) 6.128 (0.00)
comparison Number of shares 296.508 (0.00) 7.942 (0.00) 15.341 (0.00) 7.125 (0.00)
 opportunism of the CEOs due to the lesser number of independent directors in the board as CEO
compared with those in the developed nations. The result is in line with the empirical characteristics
literature ( Jensen, 1993). and firm
CEO educational background also plays a vital role in financial indicators. Specifically,
the firms whose CEOs have a financial educational background perform better than those performance
whose CEOs have no educational background in finance. In the empirical literature, there is
also a positive association between CEOs’ financial education and firm performance (Barber
and Odean, 2001; Buyl et al., 2011). A more educated CEO with a finance degree can add
value to the firm. The robustness of the results are verified by applying GMM estimation
and J-test in Models 1–3 (Table V ).

Mediation analysis and discussion

Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

To examine the mediation effects of debt and equity ratio on the link between CEO
characteristics and financial performance, mediation regression analysis is performed in
accordance with Baron and Kenny (1986). Besides, the Sobel’s test is also performed to
establish the significance of the mediation.
The objective of the first two steps is to determine whether the zero-order association
between the variables exists. If insignificant results are obtained in at least one of the steps,
then the mediation is not likely the solution; however, this is not a strictly followed principle
(MacKinnon et al., 2007).
Table VI presents the results of mediation analysis as per Baron and Kenny (1986), in which
CEO duality, tenure, age, gender and education are employed as explanatory variables, the
debt to equity ratio as a mediating variable, and the Tobin’s Q ratio as an outcome variable.

Tobin’s Q Tobin’s Q Tobin’s Q

Dependent variable Fixed effect Fixed effect GMM estimation
1–1 1–2 1–3
Variables b (sig.) b (sig.) b (sig.)

C 1.33 (0.00) −2.19 (0.00) −0.26 (0.56)

Duality −1.99 (0.00)*** −0.34 (0.00)***
Tenure −0.16 (0.04)** −0.01 (0.06)*
Education 0.29 (0.00)*** 0.24 (0.04)**
Age 0.04 (0.03)** 0.07 (0.08)*
Gender 0.21 (0.01)** 0.27 (0.06)*
CE 0.15 (0.12) 0.19 (0.13) 0.09 (0.15)
Own −0.11 (0.04)** −0.03 (0.06)* −0.07 (0.13)
LnTS 0.19 (0.11) 0.01 (0.55) 0.03 (0.03)**
LnTA 0.23 (0.01)** 0.06 (0.00)*** 0.08 (0.06)*
Tenure2 −0.07 (0.09)*
Age2 −0.08 (0.12)
Lag of dependent 0.03 (0.00)***
Year dummies Yes Yes Yes
Adjusted R2 0.11 0.49 0.19
Model significance 5.39 (0.00) 299.13 (0.00)
Wald test 19.05 (0.00)
Autocorrelation 1.68 1.57
J-statistic 1.08
REMESE
t-statistic 30.20 (0.00) Table V.
F-statistic 912.19 (0.00) Regression analysis:
Likelihood ratio 682.52 (0.00) CEO characteristics vs
Notes: *,**,***Significant at 10, 5 and 1 percent levels, respectively firm performance
 Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

MD

Table VI.

firm performance
Mediation analysis-
CEO characteristics,
capital structure and
1–4 1–5 1–6 1–7 1–8
CEO duality, capital structure, CEO tenure, capital structure, CEO age, capital structure, CEO gender, capital structure, CEO education, capital structure,
Model firm performance firm performance firm performance firm performance firm performance
Steps 1st 2nd 3rd 1st 2nd 3rd 1st 2nd 3rd 1st 2nd 3rd 1st 2nd 3rd
Dependent
variable ROA DR ROA ROA DR ROA ROA DR ROA ROA DR ROA ROA DR ROA
b (sig.) b (sig.) b (sig.) b (sig.) b (sig.) b (sig.) b (sig.) b (sig.) b (sig.) b (sig.) b (sig.) b (sig.) b (sig.) b (sig.) b (sig.)

C 15.49 (0.00) 16.62 (0.00) 5.61 (0.00) 10.64 (0.00) 11.95 (0.00) 11.44 (0.00) 3.9 (0.00) 5.81 (0.00) 9.95 (0.00) 9.12 (0.00) 4.81 (0.00) 13.99 (0.00) 15.44 (0.00) 6.89 (0.00) 19.31 (0.00)
CEOD*** −0.65 (0.00) 0.35 (0.00) −0.84 (0.00)
CEOT*** 0.29 (0.00) −0.41 (0.00) 0.09 (0.03)
CEOA** 0.35 (0.03) −0.52 (0.02 0.09 (0.01)
CEOG* 0.33 (0.02) 0.12 (0.00) 0.09 (0.00)
CEOEDU*** 0.13 (0.01) 0.12 (0.00) 0.08 (0.00)
DR*** 0.07 (0.00) 0.11 (0.01) 0.09 (0.03) 0.14 (0.02) 0.11 (0.00)
LogTA 0.22 (0.00) 0.34 (0.00) 0.94 (0.00) 0.72 (0.03) 0.92 (0.07) 0.69 (0.00) 0.72 (0.03) 0.92 (0.07) 0.69 (0.02) 0.72 (0.07) 0.12 (0.06) 0.24 (0.09) 0.29 (0.01) 0.12 (0.03) 0.96 (0.00)
LogTS 0.53 (0.00) 0.53 (0.00) 0.67 (0.00) 0.01 (0.07) 0.48 (0.09) 0.37 (0.02) 0.28 (0.01) 0.56 (0.03) 0.96 (0.00) 0.32 (0.04) 0.66 (0.06) 0.81 (0.00) 0.37 (0.09) 0.45 (0.02) 0.797 (0.00)
Year Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
dummies
2
R 0.18 0.19 0.23 0.11 0.17 0.28 0.17 0.19 0.23 0.13 0.39 0.45 0.32 0.38 0.41
F-stat. (sig.) 12.11 (0.00) 17.16 (0.00) 29.46 (0.00) 5.24 (0.00) 7.49 (0.01) 6.72 (0.00) 6.9 (0.00) 5.71 (0.00) 5.5 (0.00) 7.62 (0.00) 9.51 (0.00) 7.71 (0.00) 5.31 (0.00) 4.58 (0.00) 4.81 (0.00)
Sobel’s test/ 6.05 (0.00) 3.68 (0.00) 7.40 (0.00) 7.15 (0.00) 4.15 (0.00)
Z-stat. (sig.)
Notes: *,**,***Significant at 10, 5 and 1 percent levels, respectively
 Total assets and number of shares are employed as control variables. The significance CEO
of the first two steps indicates that mediation exists and in Step 3, the significance of the characteristics
debt to equity ratio by controlling CEO duality, tenure age, gender and education indicate and firm
that partial mediation exists. The Z-stat. of Sobel test results confirms the significance of
the partial mediation. performance
In sum, the analysis confirms that the link between CEO duality and tenure with firm
performance is partially mediated by the debt to equity ratio. The longer the tenure of the
CEO, the greater confidence and power he/she has to make strategic financial decisions that
can increase the firm value (Hartnell et al., 2016). The result of the study confirms the
empirical evidence on the developing country context as presented in the literature.
Meanwhile, when the CEO makes financial decisions when he/she has the dual position, then
this can negatively affect the firm performance. This result supports the agency viewpoint
that CEOs are opportunistic and prioritize their interests when they have more power.
Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

As for CEO age and firm performance, the link between the two is partially mediated by
debt to equity ratio. The older CEOs are more risk-averse as compared with their younger
counterparts. The older CEOs are more conservative and take fewer risks in making
financial strategies. The result of this study is by the literature (Hambrick and Mason, 1984;
Serfling, 2014).
Further, the link between CEO gender and firm performance is partially mediated by the
debt to equity ratio as well. Male CEOs are more willing to utilize debt to improve firm
performance as compared with female CEOs in a developing country context. The mediation
result is in line with the literature, which suggests that female CEOs are less risk-averse
and face more challenges in investment decisions compared with their male counterparts
(Gupta et al., 2018; Palvia et al., 2015).
Finally, the link between CEO education and firm performance is also partially mediated
by the debt to equity ratio. The formal education of CEOs enhances their abilities to make
better financial decisions, which in turn, can lead to increased firm performance. The results
are in line with earlier findings in the literature (Barber and Odean, 2001; Buyl et al., 2011;
King et al., 2016).

Conclusion
This study examines the impact of CEO characteristics on firm performance in the context
of an emerging economy, namely, Pakistan. This study supports the hypotheses regarding
the impact of CEO characteristics on firm performance formulated by the stewardship
theoretical perspective. However, some findings are not consistent with the literature as
compared to earlier studies on developed countries. The hypothesis related to the impact of
CEO duality and firm performance is empirically supported. In Pakistan, firms with CEOs
playing dual roles do not perform well compared with their counterparts. This result
supports the agency viewpoint that ownership structure and management should be
separated to increase the firm performance (Fama and Jensen, 1983). The findings of this
study related to CEO duality are contrary to those reported by Donaldson and Davis (1991)
and Kholeif (2008).
The hypothesis related to the impact of CEO tenure on financial performance is also
supported. CEO tenure affects firm performance negatively, indicating that the role of CEOs
in strategic decision making is very low and that CEOs are just figureheads, with the
Chairmen being more powerful than the former. The negative impact of CEO tenure might
be due to the lack of motivation, low compensation package, and the lack of managerial
abilities, which lead to a firm’s negative performance. This result is in line with that reported
by Kuo et al. (2014).
Among CEO characteristics, the age of CEOs has a positive and significant impact
on current and future performance, which supports the findings of Kuo et al. (2014).
 MD The current study reveals, however, that the age of CEOs has a non-linear impact on firm
performance because after a certain age, the impact on performance declines. The
hypothesis related to the impact of CEO gender on firm performance is also supported.
The results show that male CEOs have a significant impact on firm performance as
compared with female CEOs. Interestingly, the number of female CEOs in the Pakistani
corporate sector has shown a steady increase. Finally, the hypothesis related to the impact
of CEOs’ formal business and management education on firm performance is supported.
Results indicate that the CEOs’ formal business/management education helps them make
effective decisions to improve the firm performance.
In a nutshell, the regulatory bodies in Pakistan have taken significant measures to
improve the CG codes in the country. However, the overall CG practices are still weak in
most of the listed firms in Pakistan as compared with those in the developed world.
The results of this study indicate that the choices of debt or equity financing partially
Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

mediates the association between CEOs characteristics and firm financial performance and
does so either positively or negatively. Further, most of the CEOs are risk-averse.
The limitations of this study, along with some suggestions for future research are as
follows. This study covers only the mediating role of capital structure decision in explaining
the link between CEO characteristics and firm performance. Future studies may examine
the mediating role of independent directors to determine the relationship between CEO
characteristics and firm performance. Further, the study is conducted within the Pakistani
corporate sector for six years. It can be extended to other emerging countries, where CG
codes are in the same developing stage.

References
Abor, J. (2007), “Debt policy and performance of SMEs: evidence from Ghanaian and South African
firms”, The Journal of Risk Finance, Vol. 8 No. 4, pp. 364-379.
Adams, R.B., Almeida, H. and Ferreira, D. (2005), “Powerful CEOs and their impact on corporate
performance”, The Review of Financial Studies, Vol. 18 No. 4, pp. 1403-1432.
Ahmed Sheikh, N. and Wang, Z. (2012), “Effects of corporate governance on capital structure: empirical
evidence from Pakistan”, Corporate Governance: The International Journal of Business in Society,
Vol. 12 No. 5, pp. 629-641.
Ahmed Sheikh, N. and Wang, Z. (2013), “The impact of capital structure on performance: an empirical
study of non-financial listed firms in Pakistan”, International Journal of Commerce and
Management, Vol. 23 No. 4, pp. 354-368.
Balkin, D.B., Markman, G.D. and Gomez-Mejia, L.R. (2000), “Is CEO pay in high-technology firms
related to innovation?”, Academy of Management Journal, Vol. 43 No. 6, pp. 1118-1129.
Bancel, F. and Mittoo, U.R. (2004), “Cross-country determinants of capital structure choice: a survey of
European firms”, Financial Management, Vol. 33 No. 4, pp. 103-132.
Barber, B.M. and Odean, T. (2001), “Boys will be boys: gender, overconfidence, and common stock
investment”, The Quarterly Journal of Economics, Vol. 116 No. 1, pp. 261-292.
Baron, R.M. and Kenny, D.A. (1986), “The moderator–mediator variable distinction in social
psychological research: conceptual, strategic, and statistical considerations”, Journal of
Personality and Social Psychology, Vol. 51 No. 6, pp. 1173-1182.
Beasley, M.S. (1996), “An empirical analysis of the relation between the board of director composition
and financial statement fraud”, Accounting Review, Vol. 71 No. 4, pp. 443-465.
Berger, P.G., Ofek, E. and Yermack, D.L. (1997), “Managerial entrenchment and capital structure
decisions”, The Journal of Finance, Vol. 52 No. 4, pp. 1411-1438.
Bertrand, M. and Schoar, A. (2003), “Managing with style: the effect of managers on firm policies”,
The Quarterly Journal of Economics, Vol. 118 No. 4, pp. 1169-1208.
 Boal, K.B. and Hooijberg, R. (2000), “Strategic leadership research: moving on”, The Leadership CEO
Quarterly, Vol. 11 No. 4, pp. 515-549. characteristics
Bokpin, G.A. and Arko, A.C. (2009), “Ownership structure, corporate governance and capital structure and firm
decisions of firms: empirical evidence from Ghana”, Studies in Economics and Finance, Vol. 26
No. 4, pp. 246-256. performance
Boschen, J.F. and Smith, K.J. (1995), “You can pay me now and you can pay me later: the dynamic
response of executive compensation to firm performance”, Journal of Business, Vol. 68 No. 4,
pp. 577-608.
Brickley, J.A., Linck, J.S. and Coles, J.L. (1999), “What happens to CEOs after they retire? New evidence
on career concerns, horizon problems, and CEO incentives”, Journal of Financial Economics,
Vol. 52 No. 3, pp. 341-377.
Burrell, G. and Morgan, G. (2017), Sociological Paradigms and Organizational Analysis: Elements of the
Sociology of Corporate Life, Routledge, London.
Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

Buyl, T., Boone, C., Hendriks, W. and Matthyssens, P. (2011), “Top management team functional
diversity and firm performance: the moderating role of CEO characteristics”, Journal of
Management Studies, Vol. 48 No. 1, pp. 151-177.
Chang, Y.-K., Chou, R.K. and Huang, T.-H. (2014), “Corporate governance and the dynamics of capital
structure: new evidence”, Journal of Banking & Finance, Vol. 48, November, pp. 374-385.
Chen, M.-C., Cheng, S.-J. and Hwang, Y. (2005), “An empirical investigation of the relationship between
intellectual capital and firms’ market value and financial performance”, Journal of Intellectual
Capital, Vol. 6 No. 2, pp. 159-176.
Chen, Y. (2015), “Career concerns and excessive risk taking”, Journal of Economics & Management
Strategy, Vol. 24 No. 1, pp. 110-130.
Cuomo, F., Mallin, C. and Zattoni, A. (2016), “Corporate governance codes: a review and research
agenda”, Corporate Governance: An International Review, Vol. 24 No. 3, pp. 222-241.
Custódio, C. and Metzger, D. (2014), “Financial expert CEOs: CEO’s work experience and firm’s
financial policies”, Journal of Financial Economics, Vol. 114 No. 1, pp. 125-154.
Dalton, D.R., Daily, C.M., Ellstrand, A.E. and Johnson, J.L. (1998), “Meta-analytic reviews of board
composition, leadership structure, and financial performance”, Strategic Management Journal,
Vol. 19 No. 3, pp. 269-290.
Denis, D.K. (2001), “Twenty-five years of corporate governance research… and counting”, Review of
Financial Economics, Vol. 10 No. 3, pp. 191-212.
Dittus, P. and Prowse, S. (1999), Corporate Control in Central Europe and Russia: Should Banks Own
Shares? Policy, Research Working Paper No. WPS 1481, The World Bank, Washington, DC.
Donaldson, L. and Davis, J.H. (1991), “Stewardship theory or agency theory: CEO governance and
shareholder returns”, Australian Journal of Management, Vol. 16 No. 1, pp. 49-64.
Duru, A., Iyengar, R.J. and Zampelli, E.M. (2016), “The dynamic relationship between CEO duality and
firm performance: the moderating role of board independence”, Journal of Business Research,
Vol. 69 No. 10, pp. 4269-4277.
Eisenhardt, K.M. (1989), “Making fast strategic decisions in high-velocity environments”, Academy of
Management Journal, Vol. 32 No. 3, pp. 543-576.
Faccio, M., Marchica, M.-T. and Mura, R. (2016), “CEO gender, corporate risk-taking, and the efficiency
of capital allocation”, Journal of Corporate Finance, Vol. 39, August, pp. 193-209.
Fama, E.F. and Jensen, M.C. (1983), “Separation of ownership and control”, The Journal of Law and
Economics, Vol. 26 No. 2, pp. 301-325.
Fischer, H.M. and Pollock, T.G. (2004), “Effects of social capital and power on surviving
transformational change: the case of initial public offerings”, Academy of Management Journal,
Vol. 47 No. 4, pp. 463-481.
Fosberg, R.H. (2004), “Agency problems and debt financing: leadership structure effects”, Corporate
Governance: The International Journal of Business in Society, Vol. 4 No. 1, pp. 31-38.
 MD Frank, M.Z. and Goyal, V.K. (2003), “Testing the pecking order theory of capital structure”, Journal of
Financial Economics, Vol. 67 No. 2, pp. 217-248.
Frank, M.Z. and Goyal, V.K. (2007), “Corporate leverage: how much do managers really matter?”,
unpublished working paper, MN.
Friedman, M. (1999), Reconsidering Logical Positivism, Cambridge University Press, Cambridge.
Fu, Q. and Li, M. (2014), “Reputation-concerned policy makers and institutional status quo bias”,
Journal of Public Economics, Vol. 110, Feburary, pp. 15-25.
Garvey, G.T. and Hanka, G. (1999), “Capital structure and corporate control: the effect of antitakeover
statutes on firm leverage”, The Journal of Finance, Vol. 54 No. 2, pp. 519-546.
Gohar, R. and Batool, A. (2015), “Effect of corporate governance on performance of microfinance
institutions: a case from Pakistan”, Emerging Markets Finance and Trade, Vol. 51 No. S6,
pp. S94-S106.
Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

Graham, J.R. and Leary, M.T. (2011), “A review of empirical capital structure research and directions
for the future”, Annual Review of Financial Economics., Vol. 3 No. 1, pp. 309-345.
Graham, J.R., Harvey, C.R. and Puri, M. (2013), “Managerial attitudes and corporate actions”, Journal of
Financial Economics, Vol. 109 No. 1, pp. 103-121.
Gujarati, D. (2014), Econometrics by Example, Palgrave Macmillan, London.
Gupta, A., Briscoe, F. and Hambrick, D.C. (2018), “Evenhandedness in resource allocation: its
relationship with CEO ideology, organizational discretion, and firm performance”, Academy of
Management Journal, Vol. 61 No. 5, pp. 1848-1868.
Hambrick, D.C. (2007), “Upper echelons theory: an update”, Academy of Management, Briarcliff Manor, NY.
Hambrick, D.C. and Mason, P.A. (1984), “Upper echelons: the organization as a reflection of its top
managers”, Academy of Management Review, Vol. 9 No. 2, pp. 193-206.
Hartnell, C.A., Kinicki, A.J., Lambert, L.S., Fugate, M. and Doyle Corner, P. (2016), “Do similarities or
differences between CEO leadership and organizational culture have a more positive effect on
firm performance? A test of competing predictions”, Journal of Applied Psychology, Vol. 101
No. 6, pp. 846-861.
Harvey, C.R., Lins, K.V. and Roper, A.H. (2004), “The effect of capital structure when expected agency
costs are extreme”, Journal of Financial Economics, Vol. 74 No. 1, pp. 3-30.
Iossa, E. and Rey, P. (2014), “Building reputation for contract renewal: implications for performance
dynamics and contract duration”, Journal of the European Economic Association, Vol. 12 No. 3,
pp. 549-574.
Jensen, M.C. (1986), “Agency costs of free cash flow, corporate finance, and takeovers”, The American
Economic Review, Vol. 76 No. 2, pp. 323-329.
Jensen, M.C. (1993), “The modern industrial revolution, exit, and the failure of internal control systems”,
The Journal of Finance, Vol. 48 No. 3, pp. 831-880.
Jensen, M.C. and Meckling, W.H. (1976), “Theory of the firm: managerial behavior, agency costs and
ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305-360.
Khan, W.A. and Vieito, J.P. (2013), “CEO gender and firm performance”, Journal of Economics and
Business, Vol. 67, May, pp. 55-66.
Kholeif, A. (2008), “CEO duality and accounting-based performance in Egyptian listed companies:
a re-examination of agency theory predictions”, in Tsamenyi, M. and Uddin, S. (Eds), Corporate
Governance in Less Developed and Emerging Economies, Emerald Group Publishing Limited,
Bingley, pp. 65-96.
King, T., Srivastav, A. and Williams, J. (2016), “What’s in an education? Implications of CEO education
for bank performance”, Journal of Corporate Finance, Vol. 37, April, pp. 287-308.
Krishnan, G.V. and Parsons, L.M. (2008), “Getting to the bottom line: an exploration of gender and
earnings quality”, Journal of Business Ethics, Vol. 78 Nos 1/2, pp. 65-76.
 Kuo, H.-C., Wang, L.-H. and Lin, D. (2014), “CEO traits, corporate performance, and financial leverage”, CEO
International Journal of Economics and Finance, Vol. 7 No. 1, pp. 68-86. characteristics
Laasch, O. and Conaway, R. (2009), “Gender differences in preferences”, Journal of Economic Literature, and firm
Vol. 47 No. 2, pp. 448-474.
performance
La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R. (2000), “Investor protection and corporate
governance”, Journal of Financial Economics, Vol. 58 Nos 1/2, pp. 3-27.
Lewis, C.M. and Tan, Y. (2016), “Debt-equity choices, R&D investment and market timing”, Journal of
Financial Economics, Vol. 119 No. 3, pp. 599-610.
Liu, S. (2016), “Ownership structure and analysts’ forecast properties: a study of Chinese listed firms”,
Corporate Governance, Vol. 16 No. 1, pp. 54-78.
Luqman, R., Ul Hassan, M., Tabasum, S., Khakwani, M.S. and Irshad, S. (2018), “Probability of financial
distress and proposed adoption of corporate governance structures: evidence from Pakistan”,
Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

Cogent Business & Management, Vol. 5 No. 1, pp. 1-14.

McClelland, P.L., Liang, X. and Barker, V.L. III (2010), “CEO commitment to the status quo: replication
and extension using content analysis”, Journal of Management, Vol. 36 No. 5, pp. 1251-1277.
MacKinnon, D.P., Fairchild, A.J. and Fritz, M.S. (2007), “Mediation analysis”, Annual Review of
Psychoogy, Vol. 58, January, pp. 593-614.
Mackey, A. (2008), “The effect of CEOs on firm performance”, Strategic Management Journal, Vol. 29
No. 12, pp. 1357-1367.
Malmendier, U., Tate, G. and Yan, J. (2011), “Overconfidence and early-life experiences: the effect of
managerial traits on corporate financial policies”, The Journal of Finance, Vol. 66 No. 5,
pp. 1687-1733.
Martin, A.D., Nishikawa, T. and Williams, M.A. (2009), “CEO gender: effects on valuation and risk”,
Quarterly Journal of Finance and Accounting, Vol. 48 No. 3, pp. 23-40.
Mokhova, N. and Zinecker, M. (2014), “Macroeconomic factors and corporate capital structure”,
Procedia – Social and Behavioral Sciences, Vol. 110, January, pp. 530-540.
Morellec, E. (2004), “Can managerial discretion explain observed leverage ratios?”, The Review of
Financial Studies, Vol. 17 No. 1, pp. 257-294.
Nadkarni, S. and Herrmann, P. (2010), “CEO personality, strategic flexibility, and firm performance: the
case of the Indian business process outsourcing industry”, Academy of Management Journal,
Vol. 53 No. 5, pp. 1050-1073.
Palvia, A., Vähämaa, E. and Vähämaa, S. (2015), “Are female CEOs and chairwomen more conservative
and risk averse? Evidence from the banking industry during the financial crisis”, Journal of
Business Ethics, Vol. 131 No. 3, pp. 577-594.
Pasaribu, P. (2017), “Female directors and firm performance: evidence from UK listed firms”, Gadjah
Mada International Journal of Business, Vol. 19 No. 2, pp. 145-166.
Peni, E. (2014), “CEO and chairperson characteristics and firm performance”, Journal of Management &
Governance, Vol. 18 No. 1, pp. 185-205.
Rodriguez-Fernandez, M., Fernandez-Alonso, S. and Rodriguez-Rodriguez, J. (2014), “Board characteristics
and firm performance in Spain”, Corporate Governance, Vol. 14 No. 4, pp. 485-503.
Sapienza, P., Zingales, L. and Maestripieri, D. (2009), “Gender differences in financial risk aversion and
career choices are affected by testosterone”, Proceedings of the National Academy of Sciences,
Vol. 106 No. 36, pp. 15268-15273.
Saunders, M.N. (2011), Research Methods for Business Students, 5th ed., Pearson Education, London.
Serfling, M.A. (2014), “CEO age and the riskiness of corporate policies”, Journal of Corporate Finance,
Vol. 25, April, pp. 251-273.
Sheikh, M.F., Shah, S.Z.A. and Akbar, S. (2018), “Firm performance, corporate governance and
executive compensation in Pakistan”, Applied Economics, Vol. 50 No. 18, pp. 2012-2027.
 MD Singh, S., Tabassum, N., Darwish, T.K. and Batsakis, G. (2018), “Corporate governance and Tobin’s
Q as a measure of organizational performance”, British Journal of Management, Vol. 29 No. 1,
pp. 171-190.
Vintila, G. and Gherghina, S.C. (2012), “An empirical investigation of the relationship between
corporate governance mechanisms, CEO characteristics and listed companies’ performance”,
International Business Research, Vol. 5 No. 10, pp. 175-191.
Wald, J.K. and Long, M.S. (2007), “The effect of state laws on capital structure”, Journal of Financial
Economics, Vol. 83 No. 2, pp. 297-319.
Wang, G., Holmes, R.M. Jr, Oh, I.S. and Zhu, W. (2016), “Do CEOs matter to firm strategic actions and
firm performance? A meta-analytic investigation based on upper echelons theory”, Personnel
Psychology, Vol. 69 No. 4, pp. 775-862.
Westhead, P. and Cowling, M. (1998), “Family firm research: the need for a methodological rethink”,
Entrepreneurship Theory and Practice, Vol. 23 No. 1, pp. 31-56.
Downloaded by Queen Mary University of London At 12:41 03 April 2019 (PT)

Yan Lam, T. and Kam Lee, S. (2008), “CEO duality and firm performance: evidence from Hong Kong”,
Corporate Governance: The International Journal of Business in Society, Vol. 8 No. 3, pp. 299-316.
Yasser, Q.R., Al Mamun, A. and Suriya, A.R. (2015), “CEO duality structure and firm performance in
Pakistan”, Asian Journal of Accounting and Governance, Vol. 5, December, pp. 57-69.
Zaidi, R. and Aslam, A. (2006), Managerial Efficiency in Family Owned Firms in Pakistan: An
Examination of Listed Firms, Center for Management and Economic Research, Lahore
University of Management Sciences, Lahore.
Zhang, Y. and Rajagopalan, N. (2010), “Once an outsider, always an outsider? CEO origin, strategic
change, and firm performance”, Strategic Management Journal, Vol. 31 No. 3, pp. 334-346.
Zwiebel, J. (1996), “Dynamic capital structure under managerial entrenchment”, The American
Economic Review, Vol. 86 No. 5, pp. 1197-1215.

Corresponding author
Jun Lin can be contacted at: ljun@mail.xjtu.edu.cn

For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: permissions@emeraldinsight.com