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Article
Publication date: 29 April 2021

Mahdi Salehi, Arash Arianpoor and Nader Naghshbandi

The main objective of the paper is to examine the relationship between managerial attributes (e.g. managerial entrenchment, managerial myopia and managerial

Abstract

Purpose

The main objective of the paper is to examine the relationship between managerial attributes (e.g. managerial entrenchment, managerial myopia and managerial overconfidence) and firm risk-taking on the Tehran Stock Exchange (TSE).

Design/methodology/approach

The study’s sample comprises 150 companies listed on the TSE from 2011 to 2017. Risk-taking is calculated as the standard deviation (SD) of stock return. Explanatory factor analysis was performed to calculate the weight of each of the five variables managerial ownership, board independence, chief executive officer (CEO) tenure, board compensation and CEO duality as a proxy for managerial entrenchment. The study by Anderson and Hsiao (1982) was also used to calculate managerial myopia, and the study by Schrand and Zechman (2012) was used to calculate managerial overconfidence.

Findings

The results indicate that the effect of managerial entrenchment and managerial myopia on risk-taking of listed firms on the TSE is positive and significant, implying that an increase in CEO entrenchment is likely to give rise to risk-taking. The authors conjecture that this finding could be due to the investment projects impairing the firm performance in the long run. Furthermore, the effect of managerial overconfidence on listed firms' risk-taking on the TSE is significantly negative. Since overconfidence is one of the traits of narcissism and corporate managers tend to be encouraged and admired, it is implied that they tend to make efficient and low-risk investments that ultimately reduce the firm risk-taking.

Originality/value

Several theoretical studies show that managerial behavior is a determining factor in the economy. One of the reasons which justify the originality of this study is the context and institutional environment. Undoubtedly, managerial behavior (e.g. managerial entrenchment, managerial myopia and managerial overconfidence) is expected to have some significant variations in developing countries compared to prevailing in developed countries, particularly in the Iranian stock market the economic sanctions. Furthermore, due to the direct impact of individuals' psychological and behavioral characteristics on their decisions and the effect of companies' risk-taking on increasing and decreasing shareholders and companies' wealth, this research is essential. Given the function of designed behavioral criteria for assessing risk-taking behaviors, the relationship between managerial attributes and firms' risk-taking is still unclear and investigated in this study.

Details

The TQM Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1754-2731

Keywords

Article
Publication date: 3 August 2015

Xiaoqin Niu, Bingxiang Li and Xiaodong Niu

The main purpose of this paper is to analyze the effect of fairness psychology on the motivation and behavior that drives managerial entrenchment. The paper also provides…

Abstract

Purpose

The main purpose of this paper is to analyze the effect of fairness psychology on the motivation and behavior that drives managerial entrenchment. The paper also provides a theoretical basis to set up an effective incentive and restraining mechanism for corporations.

Design/methodology/approach

This paper conducts an experiment to investigate the effect of fairness preference on managerial entrenchment in enterprises.

Findings

The results of the experiment show that managers are very concerned about fair payoffs, i.e. the comparison of the principals’ earnings with managers’ market average levels of pay. The worse managers’ fairness preference becomes, the greater are the degrees of managerial entrenchment exhibited. In addition, a large payoff gap between managers and principals produces a higher sensitivity in high-ability managers, while a large payoff gap between managers and managers elsewhere in a market leads to a higher sensitivity in low-ability managers.

Originality/value

This paper provides new insights into incentives and constraints affecting the behaviors of managers at the corporate board level. Maintaining equity between managers’ payoffs, principals’ earnings and managers’ market average pay levels can restrain both the entrenchment behavior of managers caused by unfair psychology and also the increasing costs of staff switching jobs, thus producing greater profits for companies.

Details

Nankai Business Review International, vol. 6 no. 3
Type: Research Article
ISSN: 2040-8749

Keywords

Book part
Publication date: 27 October 2020

Nana Y. Amoah, Isaac Bonaparte, Ebenezer K. Lamptey and Muni Kelly

Using the L. Bebchuk, Cohen, and Ferrell (2009) entrenchment index (E-index), the authors examine the relation between management entrenchment and the probability of a…

Abstract

Using the L. Bebchuk, Cohen, and Ferrell (2009) entrenchment index (E-index), the authors examine the relation between management entrenchment and the probability of a firm being implicated in the stock option backdating scandal. The authors conduct the analysis of this study using logistic regression, and they document a negative relation between the E-index and the probability of a firm being implicated in the stock option backdating scandal. The results of this study are consistent with the view that management entrenchment is advantageous to shareholders as it protects managers from short-term reporting pressures and egregious opportunistic behavior that can be detrimental to firm value.

Details

Resistance and Accountability
Type: Book
ISBN: 978-1-83867-993-4

Keywords

Article
Publication date: 1 February 2021

Mahdi Salehi and Arash Arianpoor

The present study's main objective is to assess the relationship between business strategy and management entrenchment in listed firms on the Tehran Stock Exchange (TSE).

Abstract

Purpose

The present study's main objective is to assess the relationship between business strategy and management entrenchment in listed firms on the Tehran Stock Exchange (TSE).

Design/methodology/approach

In this paper, 128 firms have been assessed during 2012–2017. The management entrenchment variable is measured using five factors: management ownership, board independence, chief executive officer (CEO) tenure, managers' compensation and CEO duality.

Findings

The obtained results show a negative and significant relationship between the aggressive strategy of the current year (and that of the previous year) and management entrenchment such that adopting an aggressive business strategy in the current and previous years can debilitate the management entrenchment. Moreover, there is a negative and significant relationship between the current year's defensive strategy and management entrenchment, and employing a defensive business strategy in the current year can also weaken the management entrenchment. At the same time, there is no significant relationship between the previous year's defensive business strategy and management entrenchment.

Originality/value

Managerial entrenchment is a determining factor in the economy, and regarding the dominant norms in the emerging markets and developing countries, this factor is different from that of the developed countries. It is more important in some markets, like Iran that is dealing with economic sanctions. On the other hand, Tehran Stock Exchange observes numerous modifications, especially providing financial statements in accordance with international standards that are expected to affect the determination of business strategy in firms.

Details

International Journal of Productivity and Performance Management, vol. 71 no. 5
Type: Research Article
ISSN: 1741-0401

Keywords

Article
Publication date: 3 April 2018

Mustafa Dah, Mohammad Jizi and Sadim Sbeity

The imposition of the Sarbanes Oxley (SOX) Act and the NYSE/NASDAQ regulations boosted the proportion of independent directors serving on corporate boards. For certain…

Abstract

Purpose

The imposition of the Sarbanes Oxley (SOX) Act and the NYSE/NASDAQ regulations boosted the proportion of independent directors serving on corporate boards. For certain firms, increasing the number of independent directors may impose costs that exceed the benefits. The purpose of this paper is to examine the implications of increased independence following SOX, relative to the pre-SOX board independence benchmark, on managerial authority and entrenchment within the firm.

Design/methodology/approach

Data are collected from COMPUSTAT, ExecuComp, and RiskMetrics. Data are divided into two periods, pre-SOX (1996-2001) and post-SOX (2002-2006). The focus is on the sub-group of firms who were not complying with the board independence requirement prior to SOX and became compliant afterwards. Various regressions are employed to assess the implications of increased independence following SOX on managerial authority and entrenchment.

Findings

The appreciation in board independence post-SOX significantly inflates both managerial compensation and the likelihood of CEO duality. Also, there is a positive association between board independence and managerial entrenchment during both the pre- and post-SOX periods. Imposed board composition requirements diminished board monitoring efficiency and boosted the CEO dominance and control over the firm.

Originality/value

This research adds to the extant literature investigating the implications of SOX on internal monitoring and governance. The results are based on an off-equilibrium phenomenon in which companies were obliged to alter their endogenously determined board structure. Thus, regulations to improve governance could backfire as the CEO might abuse them to extract private benefits.

Details

Benchmarking: An International Journal, vol. 25 no. 3
Type: Research Article
ISSN: 1463-5771

Keywords

Article
Publication date: 7 October 2021

Mahdi Salehi and Hussein Alkhyyoon

This study aims to assess the relationship between managerial entrenchment, social responsibility and risk-taking of the firm and shareholders’ activity.

Abstract

Purpose

This study aims to assess the relationship between managerial entrenchment, social responsibility and risk-taking of the firm and shareholders’ activity.

Design/methodology/approach

The study is carried out based on the disclosed information of listed firms on Tehran and Iraq Stock Exchanges during 2011–2017 from a sample of 121 firms on the Iranian side and 37 firms on the Iraqi side. The hypothesis testing is performed using panel estimators of the adjusted regression models.

Findings

The obtained results from hypothesis testing show that there is a significant relationship between managerial entrenchment, social responsibility disclosure, social responsibility growth of the firm and risk-taking and shareholders’ activity in the Iranian Stock Exchange firms. Moreover, in the case of Iraqi firms, a significant relationship is observed between managerial entrenchment, social responsibility disclosure, social responsibility growth of the firm but the relationship between firm risk-taking and shareholders’ activity was not evident.

Originality/value

The current study is almost is the first study conducted on two Islamic countries and the outcomes of the study may help other Muslim countries on the subject of the study.

Details

Social Responsibility Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1747-1117

Keywords

Article
Publication date: 10 September 2018

Mahdi Salehi, Mahmoud Lari DashtBayaz and Samaneh Mohammadi Moghadam

The purpose of this paper is to assess the relationship between some management features (management capability, management entrenchment, agency costs and overconfidence…

Abstract

Purpose

The purpose of this paper is to assess the relationship between some management features (management capability, management entrenchment, agency costs and overconfidence) and the innovation of companies listed on the Tehran Stock Exchange.

Design/methodology/approach

The study carried out during 2009–2015. A total of 125 companies were selected from eight industries as the sample of study using the method of systematic elimination. A descriptive-correlational design was used in this study and panel data regression models were employed for developing the relationship between research variables.

Findings

The obtained results indicated that managerial ability could foster innovation, while managerial entrenchment could stifle innovation and agency costs and overconfidence have no effect on innovation.

Originality/value

The current study is almost the first project which focuses on the management characteristics and firm innovation in developing countries.

Details

International Journal of Productivity and Performance Management, vol. 67 no. 7
Type: Research Article
ISSN: 1741-0401

Keywords

Article
Publication date: 16 June 2021

Hadi Saeidi

This study aims to investigate the impacts of the psychological behaviors of managers, including entrenchment, myopia, narcissism and overconfidence, on money laundering…

Abstract

Purpose

This study aims to investigate the impacts of the psychological behaviors of managers, including entrenchment, myopia, narcissism and overconfidence, on money laundering at Iranian companies listed on the Tehran Stock Exchange.

Design/methodology/approach

The present study is descriptive-correlational in terms of methodology and applied research in terms of objectives. The statistical population consisted of all companies listed on the Tehran Stock Exchange during 2013–2019. A total of 150 companies were selected as samples via screening. Logistic regression was used to analyze the data and test the hypotheses in EViews v10.

Findings

The findings revealed that management entrenchment, managerial myopia, managerial narcissism and managerial overconfidence have significant impacts on money laundering.

Originality/value

This study pioneer investigating the impacts of psychological behaviors among managers on money laundering in Iran. As an economic crime, money laundering poses an adverse impact on economic growth in countries. The continuous monitoring of manager performance and the deployment of performance measurement systems could prevent the negative impacts of manager behavior on money laundering.

Details

Journal of Money Laundering Control, vol. 25 no. 1
Type: Research Article
ISSN: 1368-5201

Keywords

Article
Publication date: 10 April 2017

Justin S. Cox

The purpose of this paper is to explain whether the level of managerial quality and growth opportunities influences the operating and return performance between single and…

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Abstract

Purpose

The purpose of this paper is to explain whether the level of managerial quality and growth opportunities influences the operating and return performance between single and dual class IPOs.

Design/methodology/approach

The sample includes 281 initial public offerings under a dual class share structure. This paper measures managerial ability using a score method design produced by (Demerjian et al., 2012). This paper follows (Chemmanur et al., 2011) in measuring post-IPO operating performance between dual and single-class firms. This paper follows Lyon et al. (1999) and Chemmanur et al. (2011) in measuring long-term post-IPO buy-and-hold return performance. This paper employs two measures of growth/investment using Tobin’s q and expenditures such as capital, research and development, and selling, general and administrative scaled to total assets (Daniel et al., 2016).

Findings

Firms with high-quality managers experience more underpricing than low-quality managers. Likewise, dual class firms of all manager and growth types hold less cash and leverage. Using Tobin’s q as a proxy for growth, dual class firms experience higher post-IPO operating performance regardless of managerial quality. Furthermore, the findings indicate minimal evidence that dual class firms underperform single-class IPOs, lending minimal support for the managerial entrenchment hypothesis.

Originality/value

This paper is the first to partition dual and single-class IPOs based on managerial quality and growth opportunities to test long-term differences in operating and return performance.

Details

Managerial Finance, vol. 43 no. 4
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 February 2016

Alfonsina Iona and Leone Leonida

The purpose of this paper is to identify firms in the UK adopting a policy of high cash and low leverage and investigate how executive ownership contributes to this decision.

Abstract

Purpose

The purpose of this paper is to identify firms in the UK adopting a policy of high cash and low leverage and investigate how executive ownership contributes to this decision.

Design/methodology/approach

Firms following this policy are identified both by using a fixed classification approach and the analysis of the distribution of cash and leverage. Logit analysis is then used to estimate the probability of adopting the policy as a function of executive ownership.

Findings

Extreme financial policies are suboptimal as firms adopting these policies tend to undershoot (overshoot) their target leverage (cash holdings) ratios. The impact of the executive ownership on the probability of adopting this policy is U-shaped, in line with the alignment–entrenchment hypothesis.

Practical implications

Despite the substantial presence of non-executive directors in the boards and a significant amount of shareholdings by executive directors, the firms under analysis have adopted suboptimal financial policies possibly because poorly governed or because executive ownership is the range where entrenchment is feasible.

Originality/value

This is the first attempt at recognising policies of high cash and low leverage as being explicitly interdependent. It is also the first study focussing on the UK, a country of interest, because ownership structure is relatively dispersed. Moreover, instead of choosing fixed threshold levels of the variable in defining the extreme financial policy, this paper proposes the analysis of the distribution of cash holdings and leverage and accounts for target levels of cash and leverage.

Details

Corporate Governance: The International Journal of Business in Society, vol. 16 no. 1
Type: Research Article
ISSN: 1472-0701

Keywords

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