Does capital structure mediates the link between CEO characteristics and firm performance?

Abstract

PURPOSE: The purpose of this research was to investigate the relationship of a CEO’s organizational and personal characteristics and firm performance. This study also examines how debt-to-equity ratio (capital structure) mediates the impact of CEO’s characteristics toward firm performance. Manufacturing companies listed on Bursa Efek Indonesia (BEI) between 2016 and 2019 are the focus of this study.

DESIGN/METHODOLOGY/APPROACH: The research sample is chosen using the purposive sampling approach. The SmartPLS software was used to evaluate the data in this investigation. This studyiuses Tobin’s Q as measurement of firmiiperformance. The tenure, age, gender, and education of a CEO are all factors to CEO’sicharacteristics. Debt to equity ratio will be used as capital structure.

FINDINGS: The results of this study show that CEO’s tenure has significant positive impact on firm performance. CEO’s characteristics (age, gender, education) show a positive but insignificant impact on firm performance. Finally, the debt-to-equity ratio does not serve as a mediating factor in the link between CEO's characteristics and firm performance.

PRACTICAL IMPLICATIONS: These findings will be extremely beneficial to management in terms of improving a firm's performance by controlling the qualities of a CEO.

ORIGINALITY/VALUE: This article adds to the body of knowledge in the field of firm performance research which explored the function of capital structure in mediating the influence of CEO’s characteristics on firm performance.