Managerial discretion and corporate governance: The bonded relationship

Moustafa Haj Youssef,Da Teng

doi:10.22495/cocv18i3art7

Abstract

Our study aims to demonstrate the importance of managerial discretion to corporate governance research and deepen our understanding of managerial discretion. Adopting theoretical frameworks and definitions from 93 conceptual and empirical studies on managerial discretion and corporate governance, we argue that extant studies have presented explicit empirical and theoretical definitions of managerial discretion; and have proved the validity, reliability, and replicability of the concept. We argue that corporate governance scholarship cannot move forward without managerial discretion as it provides shareholders and board of directors’ essential guidance on how much freedom in decision-making is to be granted to top managers by deeming the different dimensions of the internal and external environment into consideration. We reinstate our original argument that corporate governance research is not better off without managerial discretion. We also provide a new vantage for corporate governance and managerial discretion scholars to distinguishing between the latitude of actions and latitude of objectives

Highlights

Corporate governance research focuses on disciplining managerial behaviour under the circumstances of the separation of ownership and control where the firms‟ owners delegate the managers with control powers over their wealth (Shleifer & Vishny, 1997)
Our study aims to demonstrate the importance of managerial discretion to corporate governance research and deepen our understanding of managerial discretion
This paper has re-emphasized the importance of managerial discretion in corporate governance research

Summary

INTRODUCTION

Corporate governance research focuses on disciplining managerial behaviour under the circumstances of the separation of ownership and control where the firms‟ owners delegate the managers with control powers over their wealth (Shleifer & Vishny, 1997). Haj Youssef, Hussein, and Awada (2019) directly measured the degree of managerial discretion by using an expert panel consisting of consultants and strategic management scholars This method provides construct validity and shows that such operationalisation technique is useful to understand the degree of discretion that is accorded to executives. On the consequences, Andersen (2017) limited his discussion to very few outcomes of managerial discretion while reinforcing the idea that discretion is not used as a dependent variable instead of as a moderator He argues that managers need to determine which actions fall within their discretion set, referring to the individual dimension of discretion.

MANAGERIAL DISCRETION

REINSTATING THE ORIGINAL POSITION

Findings

CONCLUSION