Abstract
Using the managerial discretion literature, this paper examines a link between CEO risk and stakeholder relationship. We first propose the necessity of modifying the risk management approach to stakeholder relationship. This paper then develops the theoretical argument that CEO risk is not directly associated with a firm’s improvement of stakeholder relationship. Rather, the present study explores the contingent conditions of CEO risk effects and how these relationships are moderated by managerial discretion available to CEO. We test proposed hypotheses with a longitudinal dataset of over 17,000 observations of the large U.S. corporations for the period 1996-2016. The empirical results show that the relationship between CEO risk and stakeholder relationship is improved when managerial discretion is favorable, such as when CEO has a long tenure, and when the product differentiability becomes high. However, when the board monitoring is intense, the impact of CEO risk on stakeholder relationship is worsened. The implications of our findings for the risk-management theory for stakeholder relationship and managerial discretion are discussed.
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