Does CEO power moderate the link between labor productivity and financial performance: agency theory or stewardship theory

Purpose - This study investigates the moderating effect of CEO power on the relationship between labor productivity and financial performance in the Tehran Stock Exchange (TSE). Design/methodology/approach - In this study, the power of the CEO variable was measured using the power index method and its effect on the relationship between labor productivity and financial performance was tested using a multivariate regression. The study sample consisted of 1,040 observations and 130 firms listed on the TSE over an eight-year period between 2012 and 2019. Panel data and appropriate statistical techniques were applied to estimate models. In this study, Tobin’s Q and return on assets (ROA) are the two variables used to measure financial performance. Findings - The results of the hypotheses show that the link between labor productivity and financial performance based on Tobin’s Q and ROA strengthens with increasing CEO power. Thus, the stewardship theory is approved on the TSE. In addition, CEO power and labor productivity have a positive impact on firm performance. Research limitations/implications - To the best of the author’s knowledge, this is the first study to examine the moderating impact of CEO power on the relationship between labor productivity and firms' financial performance in emerging capital markets. Therefore, the results of this study can be used by investors, board of directors, policymakers and regulations. Practical implications - Taking into consideration the sanctions on Iran's economy during the study period and to increase the productivity and financial performance of the company, the results of this study can provide a practical guide for the board of directors to consider the characteristics of CEO power and how to choose it in the emerging capital market. Additionally, the study results show that investors should choose companies with strong CEO to invest in the Iranian capital market. Originality/value - The current study is the first study conducted in an emerging economy to examine the moderating impact of CEO power on the link between labor productivity and financial performance.