Abstract
We intend to investigate the impact of chief executive officers’ (CEO) powers on corporate decisions made by firms in the context of board oversight (BO) and market competition (MC). From 2007 to 2017, we applied a quantitative approach to a sample of two stressed European markets (i.e., Hungary and Greece). We found that CEO power has a negative impact on corporate risk and firm performance. Furthermore, results also reveal no sign of moderation effect for MC with corporate decisions, whereas BO moderated the CEO power and corporate decisions in the Hungarian market. However, the results of moderation for the Greek market are diametrically opposed to those of the Hungarian market. Our study indicates that in stressed markets, the CEO power is suppressed and does not increase the corporate risk and firm performance despite the good governance and high market competition. The study can help boards in the optimal delivery of power to the CEO to perform well in a stressed environment
Highlights
Power is “the capacity of individual actors to exert their will” (Finkelstein, 1992, p. 506)
We aimed this study to answer the questions, Does chief executive officers’ (CEO) power impact the firms’ corporate decisions? and Which theory best complements the relationship? We aimed to find which intermediate process influences the CEO power, corporate risk (CR), and firm performance (FP) relationship
We found that CEO power had a negative impact on risk and firm performance
Summary
Power is “the capacity of individual actors to exert their will” (Finkelstein, 1992, p. 506). The firms consider a CEO position as a powerful source (Hamori & Kakarika, 2009). A CEO makes critical decisions regarding financing and plays a pivotal part in dealing with corporate decisions like corporate risk and firm value. This ability to take effective decisions depends upon how much power a CEO holds as compared to others. CEO power often comes with great responsibility and risks. A powerful CEO has the potential to offer the firm a strong sense of direction and speedy decision-making, but, at the same time, slight overconfidence and lack of oversight, or unfair use of power, might lead even to destructions (Bergh et al, 2016)
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