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CEO power, product market competition and firm value

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  • Sheikh, Shahbaz

Abstract

This study empirically investigates the effect of product market competition on the relation between CEO power and firm value. Using an index of power that encompasses structural, ownership and expert dimensions of CEO power and industry adjusted Tobin’s Q to measure firm value, I find that CEO power has a positive and significant effect on firm value. However, this effect is driven by product market competition as CEO power has a positive effect on firm value only in high competition markets and no effect on firm value in low competition markets. I also find that CEO power is positively associated with firm value in high competition markets when corporate governance is strong indicating that competition and corporate governance are complements. Overall, the results indicate that product market competition motivates powerful CEOs to use their powers to make value increasing decisions.

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  • Sheikh, Shahbaz, 2018. "CEO power, product market competition and firm value," Research in International Business and Finance, Elsevier, vol. 46(C), pages 373-386.
    • Handle: RePEc:eee:riibaf:v:46:y:2018:i:c:p:373-386
    DOI: 10.1016/j.ribaf.2018.04.009
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    More about this item

    Keywords

    CEO power; Market competition; Firm value;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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