The Influence of CEO Power, Capital Structure, and Financial Distress on Firm Reputation: The Moderating Effect of Political Connections

Abstract

This study contributes to finance and corporate governance literature by providing empirical insights into how political connections shape the relationship between CEO power, financial decisions, financial distress, and firm reputation in an emerging market context. The sample was drawn from non-financial firms, listed on the Pakistan Stock Exchange (PSX), according to their market capitalization for the period 2015-2023. The study also examined the moderating effect of political connections on the associations between CEO power and firm reputation, between capital structure and firm reputation, and between financial distress and firm reputation. The Hausman test was used to analyse the model specification for the panel data. Subsequently, the fixed effect model was chosen for the statistical analysis. The robustness of the results was further verified using the bootstrapped quantile regression method. The study suggests that the CEO power has a negligible effect on firm reputation, whereas capital structure and financial distress have a negative impact on firm reputation. Furthermore, the study also reveals that political connections positively moderate the association between CEO power and firm reputation, between the capital structure and firm reputation, and between the financial distress and firm reputation. The study has several unique findings and adds value to the existing literature on corporate finance and corporate governance.