From Influence to Impact: The CEO Power-Performance Nexus

Abstract

Aim of the Study: This study aims to assess the effect of CEO power on performance of the firm in an emerging economy like Pakistan. Additionally, the study also finds the impact of each source of CEO power, i.e., structural power, expert power, ownership power, and prestige power on firm performance.

Methodology: For empirical purpose data is collected from all non-financial firms listed on the PSX during the time 2010 till 2018. Generalized method of moments (GMM) models is used to examine the impact of various sources of CEO power on firm performance.

Findings: Findings of the study reveal that CEO power cumulatively increases firm performance. Concerning the impact of various sources of CEO power, CEOs structural power, expert power and ownership power, positively impact firm performance. However, CEO prestige power impacts firm performance negatively.

Conclusion: Empirical results provide support to practitioners and policy makers to understand how CEO power and various sources of CEO power impacts the performance of the firm.  In addition, the findings offer justification for government bodies to improve code of corporate governance in response to variable impact of different forms of CEO power. A valuable contribution has been made by this study in the body of existing literature as the researchers of the study developed a composite index to measure CEO power. With the help of the CEO power index, it is demonstrated that CEO power impacts performance of the firm positively in congruent to the notions of stewardship theory. However, relating to the impact of various sources of CEO power, the impact of each source of CEO power on firm performance is different. Thus, making CEO power a double edge sword.