The relationship between business strategy and management entrenchment

Abstract

PurposeThe present study's main objective is to assess the relationship between business strategy and management entrenchment in listed firms on the Tehran Stock Exchange (TSE).Design/methodology/approachIn this paper, 128 firms have been assessed during 2012–2017. The management entrenchment variable is measured using five factors: management ownership, board independence, chief executive officer (CEO) tenure, managers' compensation and CEO duality.FindingsThe obtained results show a negative and significant relationship between the aggressive strategy of the current year (and that of the previous year) and management entrenchment such that adopting an aggressive business strategy in the current and previous years can debilitate the management entrenchment. Moreover, there is a negative and significant relationship between the current year's defensive strategy and management entrenchment, and employing a defensive business strategy in the current year can also weaken the management entrenchment. At the same time, there is no significant relationship between the previous year's defensive business strategy and management entrenchment.Originality/valueManagerial entrenchment is a determining factor in the economy, and regarding the dominant norms in the emerging markets and developing countries, this factor is different from that of the developed countries. It is more important in some markets, like Iran that is dealing with economic sanctions. On the other hand, Tehran Stock Exchange observes numerous modifications, especially providing financial statements in accordance with international standards that are expected to affect the determination of business strategy in firms.