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Revisiting CEO power and firm value

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  • J. Lee
  • J. Park
  • S. Park

Abstract

Prior literature associates CEO power with agency problems and documents the negative relationship between CEO power and firm value (e.g., Bebchuk et al. , 2011). However, the 'optimal' level of CEO power may differ for every firm and for individual CEO depending on firm and CEO characteristics. In this study, we estimate the normal ('optimal') level of CEO power and show that the association between CEO power and firm value is nonmonotonic. Our results reveal that the normal level of CEO power is positively associated with firm value while excess and deficient CEO power is negatively associated with firm value. Using the residuals from our estimation model of CEO power, we illustrate that our measure of residual CEO power has an inverse U-shaped relationship with firm value.

Suggested Citation

  • J. Lee & J. Park & S. Park, 2015. "Revisiting CEO power and firm value," Applied Economics Letters, Taylor & Francis Journals, vol. 22(8), pages 597-602, May.
    • Handle: RePEc:taf:apeclt:v:22:y:2015:i:8:p:597-602
    DOI: 10.1080/13504851.2014.962216
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    Cited by:

    1. Sheikh, Shahbaz, 2018. "The impact of market competition on the relation between CEO power and firm innovation," Journal of Multinational Financial Management, Elsevier, vol. 44(C), pages 36-50.
    2. Sariol, Ana M. & Abebe, Michael A., 2017. "The influence of CEO power on explorative and exploitative organizational innovation," Journal of Business Research, Elsevier, vol. 73(C), pages 38-45.
    3. Sheikh, Shahbaz, 2018. "CEO power, product market competition and firm value," Research in International Business and Finance, Elsevier, vol. 46(C), pages 373-386.

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