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Article
Publication date: 29 June 2021

Shin-Rong Shiah-Hou

This study explores the effect of CEO power on earnings quality. If powerful CEOs make the information environment more opaque, they can easily conceal information to hide…

Abstract

Purpose

This study explores the effect of CEO power on earnings quality. If powerful CEOs make the information environment more opaque, they can easily conceal information to hide self-dealing behavior through earnings manipulation. Conversely, if powerful CEOs who are well-protected create a transparent information environment, they will provide better quality earnings.

Design/methodology/approach

The author constructs a composite index for CEO power by combining seven CEO characteristics and employs two variables including discretionary accruals and earnings response coefficient as proxies for earnings quality.

Findings

The author’s main results show a significant negative relation between CEO power and the firm's earnings quality. In addition, CEOs with stronger structural power and expert power are more likely to generate lower earnings quality, while those with stronger ownership power are more likely to provide higher earnings quality.

Originality/value

The findings suggest that CEO power reduces the firm's earnings quality because CEOs with structural power or expert power may destroy governance monitoring mechanisms.

Details

Managerial Finance, vol. 47 no. 12
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 5 July 2021

Akhilesh Bajaj and Li Sun

Borderline firms whose bond rating has a plus or minus specification by a rating agency face a greater potential for an upgrade or downgrade by the agency. The authors…

Abstract

Purpose

Borderline firms whose bond rating has a plus or minus specification by a rating agency face a greater potential for an upgrade or downgrade by the agency. The authors examine the level of chief executive officer (CEO) power in firms with a plus or minus bond rating. The authors test whether CEOs of these firms become more or less powerful, along with the effect of corporate governance and existing bond rating.

Design/methodology/approach

The authors use a panel sample with 16,429 observations from 1992 to 2016 from the ExecuComp database.

Findings

The authors find that CEOs of borderline-rated firms tend to be less powerful, relative to firms with a non-proximate rating. This result is largely present in firms with a plus rating. The authors also find that our primary findings are mainly driven by firms with low bond ratings (i.e. below investment grade) or by firms with weak corporate governance. Lastly, the authors document that CEO personal characteristics (i.e. CEO age, gender and tenure) impact our findings.

Research limitations/implications

First, firms in our sample are large public companies, and the external validity of our results to smaller firms that may also be private is unknown. Second, the Compustat database discontinued reporting bond rating data (i.e. S&P bond ratings) in 2017. Hence, the authors are unable to analyze the CEO power of borderline firms in years after 2016.

Practical implications

The study contributes to the larger debate on whether having powerful CEOs is beneficial to an organization or not, because prior research has examined the consequences of CEO power with mixed results. The authors document evidence to support the research stream that links CEO power to negative consequences.

Social implications

The authors find that our primary results are enhanced in firms with weak corporate governance, which is consistent with prior research that finds effective governance may mitigate CEO power and agency problems between the CEO and the Board.

Originality/value

Prior research primarily uses CEO power as a driver for performance. Our study focuses on CEO power as a dependent variable, with the bond rating change proximity as a driver of CEO power. The authors believe that this helps develop a more comprehensive understanding of CEO power.

Details

Managerial Finance, vol. 47 no. 12
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 March 2021

Hsiu-I Ting

This study aims to investigate the relations between CEO gender, power and bank performance. First, this study examines the relation between CEO gender and power. Do…

Abstract

Purpose

This study aims to investigate the relations between CEO gender, power and bank performance. First, this study examines the relation between CEO gender and power. Do female CEOs possess less power than male CEOs? As women reach the top, do they hold similar or even higher levels of power as men? Second, this study investigates the relation between the CEO gender and bank performance. How do female CEOs perform? Is the relation between gender and performance subject to CEO power?

Design/methodology/approach

This study uses the following three performance measures: ROA, pre-tax ROA and pre-provision profit over assets. This study follows Finkelstein’s (1992) classifications and adopt five variables to measure the four dimensions of CEO power: duality and compensation share measure structural power; ownership captures ownership power; number of functional areas measures the power of expertise; and elite education captures prestige power. Logit model, ordinary least squares regression and quantile regression methods are used in the analysis.

Findings

In a sample of Chinese banks, female CEOs are found to have similar power and performance as male CEOs. As women reach the top, they hold higher ownership and greater prestige power than men. Female CEOs even outperform male CEOs in non-state dominated banks. Female CEOs show their impact through their power: those with higher compensation shares or greater power are positively related to bank performance.

Originality/value

Overall, the results show that as women reach the top, they hold a higher level of power than men. As females break through the glass ceiling, they perform better than males. Moreover, female CEOs show their impact through their power. Female CEOs who overcome the barriers are less traditional and more self-directed than their peers.

Details

Journal of Enterprising Communities: People and Places in the Global Economy, vol. 15 no. 1
Type: Research Article
ISSN: 1750-6204

Keywords

Article
Publication date: 13 October 2020

Rayenda Khresna Brahmana, Hui-Wei You and Xhin-Rong Yong

This study aims to examine the moderating role of chief executive officer (CEO) power on the relationship between divestiture strategy and firm performance by framing the…

Abstract

Purpose

This study aims to examine the moderating role of chief executive officer (CEO) power on the relationship between divestiture strategy and firm performance by framing the relationship under the agency and power circulation theories.

Design/methodology/approach

This study focuses on a sample of 319 non-financial public-listed companies in Malaysia from the year 2012–2016 and estimates the model under two-step generalized method of moments panel regression to eliminate the endogeneity issue.

Findings

The results show that divestiture strategy decreased the firm performance. Meanwhile, greater CEO power changed that divestiture effect but still failed to increase the performance. This study also indicates the CEO power strengthens the relationship between firm performance and divestiture.

Research limitations/implications

The overall findings show that the positive moderating role of CEO power on the relationship between divestiture and performance. This research confirmed the agency and power circulation theories by showing that CEO power can make divestiture strategy works. However, the moderating plot tells different. CEO power may strengthen the relationship between divestiture and performance; it fails to boost up the performance in overall. Therefore, this study is about CEO power on the strategic decision and gives a good implication for corporate governance concerning the impact of CEO power on the organization’s alignment process.

Originality/value

This study examines the effect of CEO power on the performance of divestiture strategy implementation by contesting the agency and power circulation theories within an emerging country context.

Details

Management Research Review, vol. 44 no. 3
Type: Research Article
ISSN: 2040-8269

Keywords

Article
Publication date: 21 September 2020

Afzalur Rashid, Syed Shams, Sudipta Bose and Habib Khan

This study examines the association between Chief Executive Officer (CEO) power and the level of corporate social responsibility (CSR) disclosure, as well as the…

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Abstract

Purpose

This study examines the association between Chief Executive Officer (CEO) power and the level of corporate social responsibility (CSR) disclosure, as well as the moderating role of stakeholder influence on this association.

Design/methodology/approach

Using a sample of 986 Bangladeshi firm-year observations, this study uses a content analysis technique to develop a 24-item CSR disclosure index. The ordinary least squares regression method is used to estimate the research models, controlling for firm-specific factors that potentially affect the levels of CSR disclosure.

Findings

The study findings indicate that CEO power is negatively associated with the level of CSR disclosure, and that the negative effects of CEO power on the level of CSR disclosure are attenuated by stakeholder influence. CEO power is documented as reducing the positive impact of CSR disclosure on a firm’s financial performance, with this negative impact attenuated if stakeholders have greater influence on the firm.

Practical implications

This study suggests that CEO power and stakeholder influence are important factors in determining firms’ incentives to disclose CSR information. Both CEO power and stakeholder influence need to be considered in the CSR – firm performance nexus, given the mixed findings documented in the literature.

Originality/value

This study makes a significant contribution to the literature on CSR practices by documenting that firms with a powerful CEO have lower levels of CSR disclosure, and that stakeholder influence affects CSR disclosure in the emerging economy context.

Details

Managerial Auditing Journal, vol. 35 no. 9
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 18 May 2015

Lerong He, James J. Cordeiro and Tara Shankar Shaw

The purpose of the research is to study how Chief Executive Officer’s (CEO’s) ownership, CEO’s structural and expertise power and underwriters’ reputation affect the…

Abstract

Purpose

The purpose of the research is to study how Chief Executive Officer’s (CEO’s) ownership, CEO’s structural and expertise power and underwriters’ reputation affect the initial public offering (IPO) lockup period.

Design/methodology/approach

The study uses the multivariate regression method to test the hypothesis on a sample of 1,071 US IPOs, which comprise 80 per cent of the total population of IPOs over the 1998-2002 period.

Findings

It was found that CEO equity ownership had a direct positive impact and two indicators of CEO positional power (CEO duality, founder status) and underwriter reputation had a direct negative impact on the length of the lockup period that results from IPO negotiations between the issuing firm and the underwriter. It was also found that underwriter reputation negatively moderates the impact of equity ownership (likely due to a substitution effect) and positively moderates the impact of CEO duality on lockup period length (by offsetting the impact of CEO positional power).

Originality/value

Previous studies have exclusively studied the affect of economic factors on IPO lockup. This paper extends the extant literature by studying the insider’s characteristics like CEO’s power and underwriter’s reputation on IPO lockup periods.

Details

Management Research Review, vol. 38 no. 5
Type: Research Article
ISSN: 2040-8269

Keywords

Article
Publication date: 3 April 2018

Junaid Haider and Hong-Xing Fang

This paper aims to investigate whether a powerful chief executive officer (CEO) impacts corporate risk taking in the distinctive institutional and market setting of China…

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Abstract

Purpose

This paper aims to investigate whether a powerful chief executive officer (CEO) impacts corporate risk taking in the distinctive institutional and market setting of China? Second, in case such relationship exists, the paper further aims to investigate whether the presence of large shareholders affects it, and finally, whether this effect of large shareholders varies in state-owned enterprises (SOEs) and non-state-owned enterprises (NSOEs).

Design/methodology/approach

The authors have used a sample of 1,502 Chinese firms listed on Shanghai and Shenzhen stock exchanges. Sample period is 2008-2013. Besides conventional fixed-effect regression, dynamic panel data estimation (generalized method of moments) is applied to address the potential endogeneity.

Findings

The results show that CEO power is negatively related with corporate risk taking in two risk proxies, i.e. total risk and idiosyncratic risk. Second, the presence of large shareholders significantly affects this relationship, but does not change the primary negative relationship between CEO power and corporate risk taking. Finally, the results show that the relationship between CEO power and corporate risk taking is different in SOEs and NSOEs. The findings of this paper contend the organizational and behavioral theory viewpoint that individual decisions are more extreme.

Practical implications

This study provides useful implication for policymakers and suggests that while evaluating CEO’s performance, institutional and market settings should be considered.

Originality/value

This study provides new insights on the impact of CEO power on corporate risk taking under the two distinctive features in a developing country, i.e. presence of large shareholders and state-owned enterprises.

Article
Publication date: 19 January 2015

Pingying Zhang, Paul Fadil and Chris Baynard

The purpose of this paper is to better understand dependency issues between the CEO and the board as well as the between the board and CEO through Emerson’s power

Abstract

Purpose

The purpose of this paper is to better understand dependency issues between the CEO and the board as well as the between the board and CEO through Emerson’s power dependency framework.

Design/methodology/approach

A symbolic management approach is integrated with a board-CEO power dependency model to study the dependency issues.

Findings

According to the symbolic management perspective, uncertainty increases the likelihood of symbolic actions. A high level of uncertainty in CEO dependency issues suggests a high likelihood that board power over the CEO is manifested on a symbolic level, whereas a low level of uncertainty in board dependency issues suggests otherwise for CEO power over the board. The core of board-dependency issues is information provision.

Practical implications

A focus on improving board control over CEO performance, compensation and strategic proposals is likely to generate symbolic actions without an effective result.

Originality/value

The paper advocates that an effective approach to enhance board power is through reducing board information dependency on the CEO.

Details

Competitiveness Review, vol. 25 no. 1
Type: Research Article
ISSN: 1059-5422

Keywords

Article
Publication date: 22 March 2019

Shahbaz Sheikh

This study empirically aims to examine the relation between CEO power and firm engagement in corporate social responsibility (CSR). It undertakes an in-depth analysis of…

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Abstract

Purpose

This study empirically aims to examine the relation between CEO power and firm engagement in corporate social responsibility (CSR). It undertakes an in-depth analysis of how the structural, ownership and expert dimensions of CEO power affect individual dimensions of CSR.

Design/methodology/approach

This study uses ordinary least squares and industry fixed-effects regressions. It also uses instrumental variable-generalized method of moment regressions to test the robustness of empirical results.

Findings

Results indicate that CEO power is negatively related to CSR. However, the relation between CEO power and CSR is influenced by CSR strengths, as power is negatively related to CSR strengths and is not related to CSR concerns. Results also indicate that the structural and ownership dimensions of CEO power are negatively related to CSR, and the expert dimension has no significant effect on CSR. Moreover, results show that CEO power is not related to the product dimension of CSR performance.

Research limitations/implications

CEO power is measured using the structural, ownership and expert dimensions of power. However, CEOs also acquire power through social networks and connections outside the corporation which is not covered in this study.

Originality/value

This study uses comprehensive measures of CEO power and CSR. It is the first study that examines the effect of dimensions of CEO power on individual dimensions of CSR performance.

Details

Review of Accounting and Finance, vol. 18 no. 2
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 1 July 2019

Emily Breit, Xuehu (Jason) Song, Li Sun and Joseph Zhang

This paper aims to examine how Chief Executive Officer (CEO) power affects firm-level labor productivity.

Abstract

Purpose

This paper aims to examine how Chief Executive Officer (CEO) power affects firm-level labor productivity.

Design/methodology/approach

The authors rely on regression analysis to examine the relation between CEO power and labor productivity.

Findings

Following prior research (i.e. the sequential rank order tournament theory), the authors predict that powerful CEOs lead to high labor productivity. They find a significant and positive relationship between CEO power and labor productivity. They further decompose labor productivity into labor efficiency and labor cost components and find a positive (negative) relationship between CEO power and labor efficiency (cost) component, suggesting that more powerful CEOs better manage labor efficiency and control labor cost. The results are also robust to various additional tests.

Originality/value

This study contributes to two streams of research: the CEO power literature in finance and the labor productivity and cost literature in accounting. To the best of the authors’ knowledge, it is the first study that performs a direct empirical test on the relation between CEO power and labor productivity.

Details

Accounting Research Journal, vol. 32 no. 2
Type: Research Article
ISSN: 1030-9616

Keywords

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