Managerial Power Theory Research Articles

Pay for digitalization: The relationship between digital transformation and payment disparity

AbstractUsing a sample of China's A‐share listed firms from 2016 to 2021, this study empirically examines the influence of digital transformation on the pay gap within firms. Based on the optimal salary contract theory, we posit that digital transformation widens within‐firm pay gap. Conversely, based on the managerial power theory, we posit the competing hypothesis that digital transformation is negatively correlated with the pay gap. Our findings support the optimal salary contract theory, suggesting that digital transformation is positively related to the pay gap, as evidenced by an increase in executive compensation rather than a decrease in the pay of rank‐and‐file employees. These findings are robust to various checks, including alternative measurements, quantile regression model, Heckman selection model, and IV‐2SLS method. Further tests reveal that the positive relationship between digital transformation and the pay gap is more pronounced in labor‐intensive enterprises and those with lower risk‐taking abilities. This study argues that a widening internal pay gap in the digital era is a rational market choice, as evidenced by the positive impact of the within‐firm pay gap resulting from digital transformation on firms' performance. This study extends our understanding of the impact of digital transformation and enriches the literature on compensation contract design.

The determinants of compensation report transparency: manager incentives and firm characteristics

AbstractThis paper analyses the determinants of disclosure in compensation reports. Using a hand-collected dataset of 429 observations we assess which compensation, governance and ownership variables influence the quality of disclosure in compensation reports from 2006 to 2014 in a German setting. Managers have incentives to conceal compensation disclosure leading to a conflict of interest with shareholders. The overall findings suggest that opportunistic reporting incentives, as proposed by the managerial power theory, cannot explain a lack of more detailed disclosure. Managers rather avoid these disclosures because they would require additional effort. The empirical analyses reveal four major disclosure determinants: company size, age, family members in the boards and verticality. Other variables such as proprietary costs, governance variables and performance show no or no stable influence. The absence of disclosure is therefore a confluence of company resources (company size and forecasts increase disclosure), owner interests (family members in the board decreases disclosure), and concerns about social equity infringement (higher pay inequity leads to lower disclosure).

Board Compensation in Financial Sectors: A Systematic Review of Twenty-Four Years of Research

We aim to provide a comprehensive systematic analysis of scholarly publications in the field of board compensation in financial sectors extending through the years 1987 to 2021. Hence, the most notable themes, theories, and contributions to the literature are identified, and research developments over time are evaluated. With the identification of a final sample of 87 research papers indexed in Scopus, we identify research gaps to provide insight into future research following a systematic method. The results revealed that the United States of America received the broadest research interest, along with cross-country research. While the literature lacked to provide investigations for other countries of the world. Although the effect of compensation on organizational outcomes (performance and grow) is still unclear in the literature, several factors have been introduced as key drivers of the compensation, including the country’s level of development, the development of equity markets, the development of banking system, its dependence on foreign capital, collective rights empowering labor, the strength of a country’s welfare institutions, employment market forces, and social order and authority relations. On a theoretical level, agency theory has been most popular in the literature, along with providing multiple theoretical frameworks with agency theory as a slack resources theory, managerial talent theory, and managerial power theory. This is the first research to our knowledge that used a systematic review (SR) of literature to give a complete and comprehensive evaluation of the literature on board compensation in the financial sector. The current study documents the flow of literature on the board’s compensation in the financial sectors over 24 years and establishes future research opportunities.

CEO overpower and stock price crash risk: Evidence from family businesses in Vietnam

We examine how powerful CEOs affect stock price crash risk. We focus on family businesses in Vietnam because they contribute 25% of the national GDP. This study employs the Ordinary Least Squares and Fixed Effect Models and dynamic system Generalized Method of Moments to analyze a balanced panel of 983 annual observations of listed family businesses from 2005 to 2020. Our findings indicate that family businesses with CEO duality have about 60% higher crash risk than firms without CEO duality. However, higher CEO ownership reduces the stock price crash risk in the family businesses. The findings are robust after enacting the Law on Enterprises in Vietnam. Our findings align with agency theory, managerial power theory, information asymmetry theory, organizational theory, and prior literature. Our study contributes practical corporate governance implications for managing stock price crash risk in family businesses.

Arranging Golden Goodbyes for Executive Exits: A Review and Agenda for Severance Pay

While firms compensate executives in many ways, severance pay is perhaps the most controversial yet least understood form of executive compensation. In this study, we outline a review and agenda for severance pay owed if an executive is dismissed without cause from their role. Following changes to the disclosure of executive compensation in 2006, researchers have taken a renewed interest in studying executive severance pay. The current literature on this topic, however, has evolved along loosely connected research streams across multiple disciplines. This lack of integration presents a challenge for management scholars seeking to advance our knowledge of this important form of compensation. To address this issue, we provide an interdisciplinary review, incorporating recent studies that have taken advantage of the increased transparency of severance pay. Our review clarifies key differences between severance and other forms of executive pay and organizes prior studies along three main areas of research to draw conclusions about the current literature on this form of compensation. We also outline an agenda for future research, drawing upon several literatures that are key to management research—agency theory, managerial power theory, upper echelons theory, stakeholder theory, impression management theory, and the executive labor market. By integrating perspectives that, while less common in related fields, are central to management research, we provide unique insights for future research. Finally, we discuss key methodological issues, including data accuracy, measurement consistency, and analytical approaches, and how these can be addressed moving forward.

Camouflaged Compensation: Do South African Executives Increase Their Pay through Share Repurchases?

Increasingly, researchers in developed economies are associating the exponential growth in share repurchases with executives’ desire to increase company share price and thus the value of their own share-based compensation. As research on this topic in emerging economies is sparse, this paper investigates the relationship between share repurchases and executive share-based compensation in South Africa. Certain weaknesses in South African corporate governance relating to share repurchases exacerbate the risk of camouflaged rent extraction and unethical behaviour. Regression analyses were executed, using data on share repurchases and executive share-based compensation variables for listed South African companies for the period 2002–2017. Statistically significant positive relationships were identified between share repurchases and executive share-based compensation. The results support the proposition that South African executives may be repurchasing shares in a bid to increase the value of their share-based compensation (in line with the managerial power theory), rather than maximising long-term shareholder value. This paper emphasises the need for improved corporate governance relating to share repurchases in South Africa. Given the income inequality in South Africa, the findings also have social justice implications.

The Effect of Gender Diversity on Remuneration Packages in Saudi Arabia

Gender diversity among corporate directors has garnered increased appeal in recent times. Current studies have shown increased female representations in boardrooms is capable of enhancing performance, governance, and effectiveness. Thus, regulating bodies such as the Organization for Economic Cooperation and Development has been promoting such initiative, especially among developing countries such as Saudi Arabia, where such representation is still low. Therefore, this study seeks to investigate the level of gender-diversity’s representation among listed Saudi corporations’ boardrooms viz. directors’ remuneration packages. The descriptive analysis reveals that only 12% of the 136 Saudi corporations sampled have female directors on their boards. In addition, results from the regression analysis shows a positive relationship between gender diversity and directors’ compensation packages (P = 0.039). Such findings might indicate the corporates’ appreciation of women directors’ exercising their responsibilities and commitments: thus, they are highly compensated for their efforts. Or this positive association might be accredited to female directors’ power in negotiating their compensation packages in alignment with the interests of their male counterparts regardless of attributes and contribution as specified by the managerial power theory. This exploratory research study serves as one of the first of its nature in the Saudi context examining Saudi female directors’ participation on corporates’ boards in relation to their remuneration packages.

The power of the CEO and environmental decoupling

AbstractThis paper examines the impact of the power of the chief executive officer (CEO) on environmental decoupling. We define environmental decoupling as a gap between firm's claims about the environmental sustainability and actual environmental sustainability performance. Based on the managerial power theory, we argue that powerful managers are more involved in environmental decoupling and use environmental reporting in a more opportunistic manner than their less powerful peers. We analyse a dataset of 4576 firm‐year observations of US‐listed firms for the period 2002–2017. We find that powerful CEOs decouple firm's environmental performance from environmental reporting. These findings are robust to a battery of analyses and show that powerful CEOs do not show true commitment towards corporate environmental sustainability. The results provide important implications for investors, policymakers and fund managers. Useful future research recommendations are also provided to guide the research in the domain of environmental sustainability.

Agency Cost of Debt and Inside Debt: The Role of CEO Overconfidence

AbstractThis study extends our understanding of CEO inside debt compensation under an agency problem perspective by considering the impact of a behavioural trait, namely CEO overconfidence. Using a sample of US firms in Standard & Poor's ExecuComp for the period 2006–2019, we find that overconfident CEOs exhibit greater inside debt incentives (i.e. incentives arising from defined‐benefit pensions and deferred compensation). This relationship is more pronounced among firms with higher CEO overconfidence‐induced agency cost of debt (e.g. financially unconstrained firms) managed by CEOs who are less able to align compensation with their own preferences (e.g. less powerful CEOs). The results are robust to endogeneity, self‐selection concerns and alternative explanations. We contribute to the inside compensation literature that deals with agency problems under overconfident CEOs, and optimal contracting and managerial power theories.

The Moderating Mechanism of CEO Duality on Female Directors’ Attitudes toward Managerial Perks in AI Companies

Based on managerial power theory, feminist care ethics theory and critical mass theory, the paper explores how CEO duality changes the relationship between female directors and managerial perks. This paper uses SPSS and STATA statistical software to conduct an empirical study using a data sample of 4126 listed AI (artificial intelligence) companies in Shanghai and Shenzhen from 2011 to 2020. The results reveal that female directors can significantly promote managerial perks in the case of CEO duality and achieve effective correction of managerial perks when the CEO does not also serve as chairman. CEO duality is a key boundary condition for female directors to effectively monitor managerial perks. The study explores whether female directors can be effective in curbing managerial perks, given that the role played by female directors is related to environmental conditions. We expect that CEO duality, a key situational variable representing the level of CEO power, could significantly change female directors' attitudes toward management perks.

CEO Pay Disparity and Firm Value

Prior studies have reported mixed results with regard to the effect of CEO pay disparity on firm value. While one stream of studies provides evidence that, based on tournament theory, a higher wage difference between CEOs and VPs positively affects firm value, other studies refer to the managerial power theory and show that the relationship is in fact negative. In this study, I investigate the roots of prior mixed findings to identify what the true effect is, if any. I conclude that the findings of prior studies have been biased due to 1) the existence of biased observations in the ExecuComp database, 2) incomplete research models, and 3) the choices of sample period. I replicate prior studies, properly adjust their models, and identify biased observations in their sample to analyze how CEO pay disparity can affect firm value. I find that firm value is positively affected by the difference between the salary of CEOs and that of their VPs, which could also justify one of the reasons behind the increase in CEO pay disparity in recent years.

Executive Reward Structure and Financial Performance of Listed Companies in the Nairobi Securities Exchange, Kenya

Studies have reported positive and significant relationship,that is, positive relationship between executive fixed pay, cash bonus, stock options and company’s financial performance; others negative and significant relationship, while others no significant relationship. In view of4this, the4 study4 sought4 to4 establish4 the4 relationship4 between4 executive4 reward4 structure4 and4 financial4 performance4 of4 listed4 companies4 at4 the4 Nairobi4 Securities4Exchange, Kenya. The investigation's precise goals were to establish the impact of executive base pay, bonuses, and non-cash incentives, as well as executive7 stock7options, on7 the7 financial7 performance7 of7 firms7listed7 on7the Nairobi Securities7Exchange7in7Kenya.The research also determined if the rate of inflation had a moderating influence on the association between CEO compensation and financial performance of Nairobi securities exchange-listed businesses. Stakeholder theory, agency theory, marginal productivity theory, and managerial power and governance theory were all used in this research. In this study, the positivist philosophy was applied, as well as a causal research design. The target population was all 65 listed businesses on the Nairobi Securities Exchange in Kenya, and a census was conducted. The research employed panel secondary data from annual financial statements of NSE-listed businesses. The study finding indicated that all the study variables except for inflation had a positive correlation with with financial performance of listed firms. However it is basic pay, bonuses and non cash benefits that had a positive and significant effect on the financial performance of listed firms. The effect of executive share options was positive but insignificant at 5% level of significance. Equally the effect of inflation was negative but insignificant. However, inflation has a signinificant effect as a moderator in the relationship7 between7 executive7 rewards7 and7 financial7 performance7 of7 listed7 firms7 at7 the7 Nairobi7 Securities7Exchange.Its is on the basis on of this findings that the study recommends that listed firms need to tailor their executive compensation and reward schemes to performance to encourage the top executives to continuous work hard and achieve their performance targets. Keywords: Executive reward structure, executive basic salary, executive bonuses, executive non-cash benefits, executive stock options, inflation rate, financial performance.

Impact of managerial power on enterprise innovation performance: the mediating roles of financing constraints and strategic orientation

Purpose The aim of this paper is to explore the specific relationship between managerial power and enterprise innovation performance. Combined with managerial power theory and stewardship theory, financing constraints and strategic orientation, including, strategic market orientation and strategic technology orientation are included in the analysis framework to test how managerial power influences enterprise innovation performance in detail from the perspective of enterprise internal influence mechanisms. Design/methodology/approach Based on the A-share listed companies in Shanghai and Shenzhen covering the period from 2001 to 2017, this paper uses the ordinary least square method (OLS) to explore how managerial power affects enterprise innovation performance. Findings The results show that managerial power has a positive impact on enterprise innovation performance. Furthermore, the authors find that financing constraints, strategic market orientation and strategic technology orientation all have partial mediating effects in the relationship between managerial power and enterprise innovation performance. Originality/value This paper verifies the application of managerial power theory and stewardship theory in the relationship between managerial power and enterprise innovation performance in Chinese A-share listed companies, contributing to the literature on enterprise innovation. Moreover, by introducing the mediating mechanisms of financing constraints, strategic market orientation and strategic technology orientation, this paper builds an effective path for in-depth study to analyze how managerial power influences enterprise innovation performance and finds ways to improve enterprise innovation performance from the inside view of the enterprise.

Impact of managerial power on regulatory inquiries from stock exchanges: Evidence from the text tone of Chinese listed companies' annual reports

This paper uses A-share companies listed on the Shanghai and Shenzhen Stock Markets from 2014 to 2019 to empirically examine the impact of managerial power on stock exchanges' regulatory inquiries of firms' annual reports and the mediating effect of annual report tone. The study finds that the greater management's power, the less likely the firm is to receive a regulatory inquiry letter regarding its annual report in the disclosure year. In addition, the greater the managerial power, the more positive the annual report tone. The tone of the annual report has a mediating effect on the relation between managerial power and annual report regulatory inquiry. Further research manifests that the motivation of the managements is not obvious to use their power to reduce the annual report regulatory inquiry through tone manipulation when the company is experiencing poor performance. If the company received a regulatory inquiry letter concerning its annual report in the previous year, the impact of managerial power on the likelihood of receiving another regulatory inquiry letter in the current year is not obvious either. The inhibiting effect of managerial power on regulatory inquiry into annual reports is more significant among non–state-owned enterprises, compared to state-owned enterprises. This study provides rich evidence on managerial power theory and an important reference for regulatory authorities to pay attention to managerial power and annual report tone.

CEO power and corporate social responsibility decoupling

ABSTRACT While extending the scarce literature on determinants of corporate social responsibility (CSR) decoupling, we examine the impact of CEO power on CSR decoupling. Using panel data of US firms for 2002–2017, we find that CEO power increases CSR decoupling. Our results remain consistent after controlling for the endogeneity problem. Aligned with the managerial power theory, our results suggest that firms with powerful CEOs are more likely to manage CSR performance through decoupling.

Reappraising the Problem of CEO Compensation: Modern and Old Theoretical Perspectives

CEO compensation is a controversial issue. In recent decades, the mainstream theory of corporate governance has failed to produce a convincing explanation of the factors that shape the CEO compensation process, which, according to managerial power theory, is largely determined by the CEO’s discretionary power. These problems are increasing in the era of corporate social responsibility. This article’s objective is to show that we can better understand the problem of CEO compensation by reconsidering the various contributions of older research that focused on uncertainty and entrepreneurial action on the one hand and on industrial sabotage and reasonable values on the other. This objective is a prerequisite to rethinking CEO compensation in relation to the challenges of modern production, to the necessary development of an industrial democracy in our market societies, and to constructing a solid theoretical basis from which to reconsider CEO compensation in relation to the true mission of CEOs and to a normative vision for reform. Thus, this article provides theoretical and conceptual bases for a renewed academic debate that will allow for explanatory progress regarding the understanding of the place that the issue of CEO compensation holds in the emergence of a more just version of capitalism.

The determinants of CEO compensation: new insights from United States

PurposeThe purpose of this paper is to examine the determinants of CEO compensation for sample of the US firms. It emphasizes the presence of executive compensation persistence and the importance of CEO power besides performance while setting CEO pay.Design/methodology/approachThe empirical analysis is conducted on a large sample of US firms during the period 2006–2016. It is based on the generalized method of moments (GMM) models to assess the impact of numerous factors on CEO compensation.FindingsThe main findings reveal that firm performance proxied by accounting-based proxies, as well as market-based proxies, plays a significant role in explaining variations in levels of executive compensation. Moreover, there is a significant persistence in executive compensation among the US sample firms. The authors also document that poor governance conditions (managerial power hypothesis) lead to high compensation levels offered to CEO.Research limitations/implicationsAt the end, without a doubt, the analysis has some limitations that prompt the authors to consider future research directions. One future research avenue that can help better explain the effect of firm performance on the CEO compensation is to study this issue using an international sample to determine whether country-level characteristics (e.g. creditor rights, shareholder rights and the enforcement climate) can influence this relationship. Furthermore, it can be worthwhile to deepen the analysis of CEO power and its impact on CEO compensation. It will be interesting to emphasize how the CEO power interacts with the other governance characteristics and some CEO attributes as CEO gender.Practical implicationsThe paper's findings have implications for practitioners, policymakers and regulatory authorities. First, the findings inform regulators that performance is not the only determinant of CEO pay level. This may warrant increased firm disclosure of the details of the pay structure. Second, the study offers insights to policymakers and members of boards of directors interested in enhancing the design of executive compensation and internal corporate governance, to better align managerial incentives to shareholder interests. Firms should strengthen the board independence and properly constitute the board committees (compensation, risk, nomination…).Originality/valueThis paper presents a comprehensive overview of the CEO compensation determinants. It supplements the classic pay-for-performance sensitivity predictions with insights gained from the dynamics of wage setting theory and managerial power theory. The authors develop a composite index to measure the CEO power in order to test the impact of CEO attributes on CEO pay. Additionally, it verifies whether the determinants of CEO pay depend on firm age and size.

Do Board Gender Quotas Benefit Minority Shareholders? An Illustration through Related‐Party Transactions

AbstractWe use a sample of French firms over the period 2001–2017 to investigate the relationship between board gender diversity and related‐party transactions (RPTs). Although some of these transactions are efficient, RPTs are usually perceived negatively by outsiders because of the existence of conflict‐of‐interest transactions deemed to be value‐destroying. Based on agency theory and managerial power theory, we argue that female directors have the ability and motivation to challenge managers’ use of RPTs. Consistently with this argument, we find that board gender diversity negatively correlates with the number of reported RPTs. This negative correlation is driven by female directors involved in the board's monitoring duties (female independent directors and members of the audit committee). However, because they are less likely to be able to challenge managers, female inside directors do not affect the occurrence of RPTs. In January 2011, the French regulator enacted a gender quota law resulting in a significant increase in female board representativeness. We find that the marginal effect after enacting the gender quota law on the number of reported RPTs is negative for the proportion of female independent directors and female audit committee members, and positive for female inside directors.

Who wins the tug of war? A comparative study of the influence of board power and CEO power on CEO-TMT pay gap

Extant studies theoretically debate and empirically present inconsistent findings of the factors that influence the CEO-TMT pay gap. In this study, we extend the research of the antecedents of the CEO-TMT pay gap by directly comparing different theoretical predictions regarding the impacts of board power and CEO power on the CEO-TMT pay gap. Conducting dynamic panel analyses with GMM estimator on a sample of 2,117 firm-year observations in the S&P 500 between 2006 and 2013, we empirically test the contrasting predictions regarding the relationships among board power, CEO power, board-CEO power imbalance, and the CEO-TMT pay gap. In turn, we find that board power is negatively associated with the CEO-TMT pay gap and CEO power has the opposite effect. Moreover, the stronger board power against CEO power, the smaller the CEO-TMT pay gap becomes. Our theoretical analyses and empirical investigations contribute to the existing theoretical debate among agency theory, tournament theory, and managerial power theory regarding the determinants of the CEO-TMT pay gap. Consistent with agency theory predictions rather than tournament theory ones, our empirical results suggest that boards are conscientious about the potential negative effects of a larger CEO-TMT pay gap and therefore stronger boards usually do not rely on larger CEO-TMT pay gap to incentivize CEOs. This study also contributes to corporate governance literature by offering new aggregated proxies for board power and CEO power which reflect the multidimensional features of board-CEO relationships

Executive remuneration, corporate governance and corporate performance: Evidence from China

This study investigates the impact of corporate performance and corporate governance on executive remuneration in a Chinese market setting. Using Generalized Method of Moments (GMM) estimation approach for a sample of 860 non-financial firms listed on Chinese Stock Exchanges over the 15 years period of 2004–2018, the study found a positive and significant association between corporate profitability and executive pay. The study further reports that ownership concentration is positively related to executive pay revealing an entrenchment effect i.e., collusion between large shareholders and top management. Consistent with managerial power and agency theory CEO duality exhibits a positive relationship with executive remuneration, while board size and board independence also reveal a positive association with executive pay, indicating board ineffectiveness in reducing managerial entrenchment. Interestingly, non-state-owned enterprises report a negative relationship of board size with executive remuneration which means non-state-owned enterprises with larger board size tend to reduce executive pay because they may have better control and monitoring. Following the managerial power propositions, CEO duality weakens the performance sensitivity of executive pay, but contrary to agency theory the impact of board independence on this sensitivity is in contrast and weakens the relationship of managerial pay and performance, making the independent director's role ambiguous.