Does CEO power matter for the performance of retrenchment strategy?

Abstract

PurposeThis research aims to examine the moderating role of CEO power on the relationship between retrenchment strategy and firm performance by framing the relationship under an agency theory, and power circulation theory.Design/methodology/approachThis study focuses on a sample of 319 non-financial public listed companies in Malaysia from the year 2011–2016 and estimates the model under two-step GMM panel regression to eliminate the endogeneity issue.FindingsThe results show that the retrenchment strategy increased firm performance. Meanwhile, greater CEO power changes that retrenchment effect into increased performance. This study also indicates the CEO power strengthens the relationship between firm performance and retrenchment. However, CEO power does not have any effect on the performance of low retrenchment, and the performance of big firm size.Research limitations/implicationsThe findings show that the higher CEO power cause higher firm performance and higher retrenchment. This research suggests that CEO power can make retrenchment strategy works and the decision made can affect the firm performance significantly.Originality/valueThis study examines the effect of CEO power on the performance of retrenchment strategy implementation by contesting agency theory, power circulation theory, and resource-based view theory within the emerging country context.