An exploration of managerial discretion and its impact on firm performance: Task autonomy, contractual control, and compensation

Abstract

Managerial discretion refers to coherent, rational, unified decisions executed by managers to achieve organizational development. This study empirically tests a managerial discretion model that posits that overall firm performance depends on the degree to which task autonomy, contractual control and management compensation influence the managerial discretion exercised in international joint ventures (IJVs). With survey data from 136 IJVs in China, the authors identify that relationship between the level of organizational commitment of IJV managers and the exploitation of firm-specific capabilities tends to increase when managers have the necessary levels of discretion. Our findings suggest that contractual control does not engender a statistically significant relationship between greater managerial discretion and superior firm performance. This study contributes to strategic management and managerial capitalism theory in that, as IJV managers gain more managerial discretion, their task autonomy and compensation positively mediate the relationship between this discretion and the performance.