Sources of CEO Power and Firm Financial Performance: A Longitudinal Assessment

The chief executive officer (CEO) is generally regarded as the most powerful organizational member. Attributions regarding the potential effect of a strong CEO on firm financial performance are common in both the academic literature and popular press. The oft-made assumption is that a powerful CEO will impact firm performance. The anticipated direction of this influence, however, has not been uniformly established. Moreover, we are not aware of any direct empirical assessment of the relationship between CEO power and firm financial performance. We are also intrigued by the potential for reciprocal effects—firm performance impacts the level of CEO’s power. Our review of the literature demonstrates no empirical attention to this possibility. This study relies on a four-wave panel design to assess the nature of the relationship between CEO power and firm performance. Results of LISREL analysis demonstrate that aspects of CEO power and financial performance are, in fact, interrelated. Performance was found to be both an antecedent condition and outcome of CEO power.

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