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A study of CEO power, pay structure, and firm performance

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  • Tien, Chengli
  • Chen, Chien-Nan
  • Chuang, Cheng-Min

Abstract

This study has extended existing research on CEO power, pay structure, and firm performance, offering models based mainly on agency theory and managerial power theory, and testing hypotheses using data from 112 companies across a five-year span (2001–2005) in computer-related industry groups in the United States. The results indicated that power from executive directorship positively impacts a firm's return on assets and return on equity, and that CEO power from duality negatively impacts CEO long-term pay and total pay, while CEO power from tenure positively impacts CEO long-term pay and pay leverage, and composite power negatively impacts short-term pay. Evidence for CEO pay as a mediator between CEO power and firm performance revealed that CEO short-term pay positively impacts a firm's return on assets and international performance but negatively impacts its market value, regardless of which source of power is being controlled. CEO total pay positively impacts a firm's return on assets and international performance, with power from CEO duality, directorship, or composite power being controlled. Hence, and in general, CEO pay fails to significantly mediate the relationships between CEO power and firm performance. The contributions include a multiple-perspective study of CEO power, compensation, and firm performance to comprehensively discover each of their respective relationships. This study has further extended the debate over agency perspectives with stewardship perspectives to fill knowledge and theoretical gaps. Thus, evidence-based findings provide boards of directors with practical knowledge for sound governance with another avenue for future research in corporate governance.

Suggested Citation

  • Tien, Chengli & Chen, Chien-Nan & Chuang, Cheng-Min, 2013. "A study of CEO power, pay structure, and firm performance," Journal of Management & Organization, Cambridge University Press, vol. 19(4), pages 424-453, July.
    • Handle: RePEc:cup:jomorg:v:19:y:2013:i:04:p:424-453_00
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    Cited by:

    1. Sani Saidu, Usman Belo Baba, 2020. "CEO Experience and Firm Performance: Evidence from Nigerian Financial Sector," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 5(2), pages 77-88, October.
    2. Ge Wang & Huijin Zhang & Saixing Zeng & Xiaohua Meng & Han Lin, 2023. "Reporting on sustainable development: Configurational effects of top management team and corporate characteristics on environmental information disclosure," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(1), pages 28-52, January.
    3. Fang, Hao & Lee, Jen-Sin & Chung, Chien-Ping & Lee, Yen-Hsien & Wang, Wen-Hao, 2020. "Effect of CEO power and board strength on bank performance in China," Journal of Asian Economics, Elsevier, vol. 69(C).
    4. Theophilus Lartey & Diana Owusu Yirenkyi & Samuel Adomako & Albert Danso & Joseph Amankwah‐Amoah & Ashraful Alam, 2020. "Going green, going clean: Lean‐green sustainability strategy and firm growth," Business Strategy and the Environment, Wiley Blackwell, vol. 29(1), pages 118-139, January.
    5. Ting, Hsiu-I & Chueh, Horace & Chang, Pang-Ru, 2017. "CEO power and its effect on performance and governance: Evidence from Chinese banks," Emerging Markets Review, Elsevier, vol. 33(C), pages 42-61.
    6. Alam, Ahmed W. & Farjana, Ashupta & Houston, Reza, 2024. "Geopolitical risk, CEO power, and corporate lobbying: Do powerful CEOs lobby more?," Finance Research Letters, Elsevier, vol. 62(PA).
    7. Riaqa Mubeen & Dongping Han & Jaffar Abbas & Iftikhar Hussain, 2020. "The Effects of Market Competition, Capital Structure, and CEO Duality on Firm Performance: A Mediation Analysis by Incorporating the GMM Model Technique," Sustainability, MDPI, vol. 12(8), pages 1-18, April.
    8. Yuanyuan Hu & Shouming Chen & Yuexin Shao & Su Gao, 2018. "CSR and Firm Value: Evidence from China," Sustainability, MDPI, vol. 10(12), pages 1-18, December.
    9. Sanjukta Brahma & Fotini Economou, 2024. "CEO power and corporate strategies: a review of the literature," Review of Quantitative Finance and Accounting, Springer, vol. 62(3), pages 1069-1143, April.
    10. Tutun Mukherjee & Som Sankar Sen, 2022. "Impact of CEO attributes on corporate reputation, financial performance, and corporate sustainable growth: evidence from India," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-50, December.
    11. Stefan Schmid & Sebastian Baldermann, 2021. "CEOs’ International Work Experience and Compensation," Management International Review, Springer, vol. 61(3), pages 313-364, June.

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