The Moderating Effect of Corporate Governance on Relationship between CEO Power and Firm Performance
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Abstract
The purpose of this study is to study the effect of corporate governance on the relationship between CEO power and firm performance. The sample has been collected for 7 years, from 2010 to 2016. This study uses the Multiple Regression Analysis to test the relationship between CEO power and firm performance. In addition, this study tests the moderation effect of corporate governance on the relationship between CEO power and firm performance.
The empirical study found that CEO power has statistical significance effect on firm performance. To test the moderating effect, this study found that the effect of the interaction between CEO power and corporate governance is not significant to the firm performance. Thus, we tested the sub-group analysis to see the effect of corporate governance on those relationship. This empirical study shows an interesting result. When companies have high CG score, the relationship between CEO power and firm performance is not significant. In contrast, when companies have low CG score, the relationship between CEO power and firm performance shows a negative effect to firm performance. This study implied that the companies with low level of corporate governance will have an Agency problem. CEOs who hold the position of the chairman of the board will have high power level thus they will be difficult to be monitored from the board. As a result, they can take advantage for their own benefit instead of for the shareholders. Finally, the firm performance declined.
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