مجله توسعه و سرمایه (Aug 2021)
Investigating the Effect of CEO Power on Financial Performance of Firms Listed with Tehran Stock Exchange
Abstract
Objective: This study is supposed to investigate the relationship between CEO power and performance measurement. CEO tenure, management duality and board independence are the measures used to capture managerial power. Performance measurements are ROA, ROE and tobin's Q. Methods: It is expected that manager power have positive effect on performance. To test this hypothesis we used there hypotheses with the the CEO power as independent variable and and ROA, ROE and tobin's Q as dependent variable in each of them. Control variables used in this study are firm size, firm growth and firm age. We used data from 122 firms listed with the Tehran Stock Exchange from 2012 to 2020, collected from CODAL database. This is an applied research and has an experimental methodology. Findings: As was expected we found managerial power to be positively influencing ROE and Tobin's Q. To the contrary there is no relationship between manager power and ROA. Conclusion: Agency conflicts are the most important downside in the separation of ownership and management. An efficient way of reducing negative effects of this issue is to coordinate owner and manager interests through accounting variables. Shareholders prefer to have the highest return on their investment, namely ROE. As manager is employed by the board of directors, representing the owners, it is highly expected that there be an emphasis on owners' performance measures in manager contact, rather than other measures interesting to other stakeholders. Owners are willing to grant higher power to manager only if this higher power leads to improvement of owners' performance measures. The positive relationship found between manager power and ROE could verify this claim. Improvement in owners' interests is expected to influence positively their investment value proxied by Tobin's Q. Findings are indicative of this claim as well.
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