Article2011

CEO power, disclosure quality and the variability of firm performance

45 citations0/0 files storedNankai Business Review International

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Corporate Finance and Governance Auditing, Earnings Management, Governance Corporate Governance and Financial Management

Abstract

Purpose The purpose of this paper is to investigate how disclosure quality affects the relation between chief executive officer (CEO) power and the variability of firm performance. Moreover, it also examines the impacts of ownership structure and disclosure quality on the relationship between CEO power and performance variability. Design/methodology/approach Empirical research was carried out. Findings It was found that: first, firms whose CEOs have more power will exhibit higher performance, but display more variability in firm performance. Second, disclosure quality can affect the relationship between CEO power and the variability of firm performance and more specifically, increase in disclosure quality reduces the performance variability caused by CEO power. Third, the effects of CEO power on the variability of firm performance are higher in state‐owned firms than in non‐state‐owned firms. Moreover, the effect of higher disclosure quality for lowering the variability of firm performance is stronger in state‐owned firms than in non‐state‐owned firms. Practical implications First, the authors find that when evaluating corporate governance practices, both firm performance and the variability of firm performance should be taken into account. Second, this paper fills the void in the extant literatures by demonstrating that CEO power, as well as disclosure quality, can affect firms' operational risk. Third, for firm owners, when firms are facing large uncertainty from institutional environment, a great trade‐off between firm performance and operational risk, when determining the degree of CEO power, will play an important role in corporate governance. Originality/value This paper complements the extant literatures by examining the impacts of CEO power to firm output from the dimensions of both firm performance and operational risk; and by examining the impacts of ownership structure and disclosure quality on the relationship between CEO power and performance variability.

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References

1993The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems 1992POWER IN TOP MANAGEMENT TEAMS: DIMENSIONS, MEASUREMENT, AND VALIDATION.2003Executive Compensation as an Agency Problem 2003Powerful CEOs and Their Impact on Corporate Performance 2007Board size and the variability of corporate performance 1969The group as a polarizer of attitudes.1986The Architecture of Economic Systems: Hierarchies and Polyarchies 1984The Architecture of Economic Systems: Hierarchies and Polyarchies

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