Effect of CEO power on Malaysian firm performance
This study extends the literature understanding on the role of CEO on firm performance by providing more precise measurement of CEO power. Firm performance is measured using Tobin Q measure and ROA. CEO power is being proxied by using three different variables which are founder dummy, duality dummy and degree of shares ownership. The sample study involves public listed companies in Malaysia ranging from year 2001 until year 2012. The regression results show that founder CEO and CEO ownership do show negative and significant effect on Tobin Q. This is consistent with our hypothesis which suggests that when a company with CEO that possess high power, the firm performance will become deteriorate due to agency concern. All four control variables, which are firm size, firm age, leverage and number of segment show significant effects on Tobin Q. The findings remain significant even when financial crises were controlled.
performance. Jurnal Pengurusan, 38, 27–40.
Andrews, K. (1987). The concept of corporate strategy. Dow-Jones. Homewood, IL: Irwin.
Arrow, K.J. (1962). The economic implications of learning by doing. Review of Economic Studies, 29, 155–73.
Baker, G. (1992). Beatrice: A study in the creation and destruction of value. Journal of Finance, 47, 1081–1119.
Barnhart, S. & Rosenstein, S. (1998). Board composition, managerial ownership, and firm performance: An
empirical analysis. The Financial Review, 33 (4), 1-16.
Barron, D. N., West, E. & Hannan, M. T. (1994). A time to growth and a time to die: Growth and mortality of credit
unions in New York, 1914‐1990. American Journal of Sociology, 100 (2), 381-421.
Berger, P. & Ofek, E. (1995). Diversification’s effect on firm value. Journal of Financial Economics, 37, 39–66.
Dalton, D. R. & Kesner, I. F. (1985). Inside/outside succession and organizational size: The pragmatics of executivereplacement. Academy of Management Journal, 26.
Davidson III, W. N., Tong, S., Worrel, D. L. & Rowe, W. (2006). Ignoring rules of succession: How the board reacts
to CEO illness announcements. Journal of Business Strategies, 23, 93–117.
Finkelstein, S. (1992). Power in top management teams: Dimensions, measurement, and validation. Academy of
Management Journal, 35, 505-538.
Garnsey, E. (1998). A theory of the early growth of the firm. Industrial and Corporate Change, 7 (3), 523-556.
Ghosh, A. (2006). Determination of Executive Compensation in an Emerging Economy. Evidence from India.
Emerging Markets Finance and Trade, 42(3), 66-90.
Hadlock, C., Ryngaert, M. & Thomas, S. (1999). Corporate structure and equity offerings: Are there benefits to
diversification?”Unpublished Working Paper, Michigan State University, Michigan.
Hermalin, B. E. & Weisbach, M. S. (1991). The effects of board composition and direct incentives on firm
performance. Financial Management, 20 (4), 101-12.
Himmelberg, Charles P., R. Glenn Hubbard & Darius Palia (1999). Understanding the determinants of managerial
ownership and the link between ownership and performance. Journal of Financial Economics, 53, 353-384.
Huang, H.-H., Hsu, P., Khan, H. A., & Yu, Y.-L. (2008). Does the appointment of an outside director increase firm
value? Evidence from Taiwan. Emerging Markets Finance and Trade, 44(3), 66-80.
Jensen, M. & Meckling, W. (1976). Theory of the firm: Managerial behaviour, agency costs, and ownership
structure. Journal of Financial Economics, 3, 305-360.
Jovanovic, B. (1982). Selection and the evolution of industry. Econometrica, 50(3), 649-670.
Lamont, O. (1997). Cash flow and investment: Evidence from internal capital markets. Journal of Finance, 52, 83–109
Lang, L., & René M. Stulz (1994). Tobin’s Q, corporate diversification and firm performance. Journal of Political
Economy, 102, 1248-1280.
Lewellen, W. (1971). A pure financial rationale for the conglomerate merger. Journal of Finance, 26,521–537.
McConnell, John J. & Henri Servaes. (1990). Additional evidence on equity ownership and corporate value. Journal
of Financial Economics, 27, 595-612.
Mintzberg, H. (1973). The Nature of Managerial Work. New York: Harper and Row.
Morck, R., A. Shleifer, & R.W. Vishny. (1988). Characteristics of targets of hostile and friendly takeovers. In: A.J.
Auerbach (Eds), Corporate Takeovers: Causes and Consequences. University of Chicago Press, Chicago, IL.
Myers, S.C. & S.M. Turnbull. (1977). Capital budgeting and the Capital Asset Pricing Model: Good news and bad
news. Journal of Finance, 32, 321-333.
O’Brien, R.M. (2007). A caution regarding rule of thumb for variance inflation factors. Quality and Quantity, 41, 673-90.
Pfeffer, J. (1997). New directions for Organization Theory: Problems and prospects. Oxford University Press, New York.
Renée B Adams, Heitor Almeida, & Daniel Ferreira. (2005). Powerful CEOs and their impact on corporate
performance. Review of Financial Studies, 18(4), 1403-1432.
Sah, R. K., & J. Stiglitz. (1986). The architecture of economic systems: Hierarchies and polyarchies. American
Economic Review, 76, 716-27.
Sah, R. K., & J. Stiglitz. (1991). The quality of managers in centralized versus decentralizedorganizations. Quarterly
Journal of Economics, 106, 289-295.
Servaes, H. (1996). The value of diversification during the conglomerate merger wave. Journal of Finance, 51, 1201–1225.
Vassilakis, S. (2008). Learning-by-doing. In: The New Palgrave Dictionary of Economics”, Second Edition. (Eds)
Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan.
Vintilă, G., Onofrei, M., & Gherghina, Ş. C. (2015). The effects of corporate board and CEO characteristics on firm
value: empirical evidence from listed companies on the Bucharest Stock Exchange. Emerging Markets Finance
and Trade, 51(6), 1244-1260.
White, H. (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for
heteroskedasticity. Econometrica, 48, 817-838.