CEO power and corporate risk: The impact of market competition and corporate governance

摘要

Research Question/Issue Although there is no unified theory that can explain the relationship between CEO power and corporate risk, the empirical evidence generally finds a positive association. This study argues that market competition and corporate governance play critical roles in influencing this relationship. Research Findings/Insights Using a large panel of nonfinancial U.S. corporations for the period 1992-2015, I find that CEO power is positively associated with total and idiosyncratic measures of risk. However, this positive association remains significant only when market competition is high or corporate governance is strong. Theoretical/Academic Implications The research design of this study combines the predictions of agency theory, the behavioral agency model, and prospect theory to further our understanding of the relationship between CEO power and corporate risk, including consideration of how competition and corporate governance influence this relationship. Practitioner/Policy Implications The empirical evidence presented in this study can help boards to more accurately gauge when CEO power is most beneficial in terms of optimal levels of corporate risk and to better understand the relationship between power and risk. The results suggest that boards should grant more power to their CEOs when their firms operate in high-competition markets or have strong corporate governance in place.