Public Release: 9-Dec-2016
Study examines how CEO power affects companies in times of crisis
University of Texas at Dallas
A new study from UT Dallas finds that bestowing considerable power in the CEO does not create value for the firm during industrywide downturns.
"We look at severe industry downturns. The essential idea is, when you have concentrated power in the hands of the CEO or a small group of decision-makers, does that lead to better decision-making or worse?"
The study, "When Crisis Knocks, Call a Powerful CEO (or Not)," recently was published online in Group & Organization Management.
Using information on large publicly traded firms from Standard & Poor's, stock price information and databases on boards of directors, the researchers sampled 3,724 CEOs in 2,097 companies during the time period of 1992 to 2009. CEO power was determined by answering questions such as, "Is the CEO also the chairman of the board?" and "How much does the CEO make in comparison to the firms' other top executives?"
For innovative firms with powerful CEOs, an industry downturn results in a notable decrease in the firm's value, or book-to-market ratio, relative to a less powerful CEO, the study found. For firms with powerful CEOs in competitive industries and high-discretion industries, a downturn results in a decrease in firm value.