Impact of CEO Characteristics on firm performance
1. Introduction
1.1 Background of the study
Since last decade, well publicized scams in the corporate world such like Enron and WorldCom have ignited a hot debate on the corporate governance which is "the system by which companies are directed and controlled" (Cadbury Committee, 1992). The mishaps caused by the weak corporate governance structure have caused chaos in the corporate world around the globe. Corporate governance is represented by general set of customs, regulations, habits, and laws that determine how a firm should be run as to maximize the wealth of its stockholders. So, in broader sense, corporate governance is maximizing the shareholder’s value by ensuring practices which are fair with regard to all stakeholders, customers, employees, investors, vendors, the government and the society-at-large. In this context, agency theory which was proposed by Jensen and Meckling (1976) has dominated the literature. The theory proposes a conflict of the interest between stock holders and management of the firm where management of the firm might seek to serve self-interest rather than the interests of the shareholders. This conflict of interest may give rise to the agency costs and mitigating such costs or good corporate governance could be beneficial for the shareholder’s in two ways: first it could lead towards a higher stock price due to the expectation of the stockholders that less cash flows would be wasted by the managers and profits or dividends which would be distributed to them in the future would be higher (La Porta et al., 2002; Jensen and Meckling, 1976); secondly, the monitoring costs are not built into the cost of capital and organization has lower cost of capital (Shleifer & Vishny, 1997). Thus, reduction of the agency costs and improvement of the corporate governance mechanism is expected to have a positive impact on the profitability and value of the firm.
CEO is the topmost managerial position in an organization and all the managerial power
1.1 Background of the study
Since last decade, well publicized scams in the corporate world such like Enron and WorldCom have ignited a hot debate on the corporate governance which is "the system by which companies are directed and controlled" (Cadbury Committee, 1992). The mishaps caused by the weak corporate governance structure have caused chaos in the corporate world around the globe. Corporate governance is represented by general set of customs, regulations, habits, and laws that determine how a firm should be run as to maximize the wealth of its stockholders. So, in broader sense, corporate governance is maximizing the shareholder’s value by ensuring practices which are fair with regard to all stakeholders, customers, employees, investors, vendors, the government and the society-at-large. In this context, agency theory which was proposed by Jensen and Meckling (1976) has dominated the literature. The theory proposes a conflict of the interest between stock holders and management of the firm where management of the firm might seek to serve self-interest rather than the interests of the shareholders. This conflict of interest may give rise to the agency costs and mitigating such costs or good corporate governance could be beneficial for the shareholder’s in two ways: first it could lead towards a higher stock price due to the expectation of the stockholders that less cash flows would be wasted by the managers and profits or dividends which would be distributed to them in the future would be higher (La Porta et al., 2002; Jensen and Meckling, 1976); secondly, the monitoring costs are not built into the cost of capital and organization has lower cost of capital (Shleifer & Vishny, 1997). Thus, reduction of the agency costs and improvement of the corporate governance mechanism is expected to have a positive impact on the profitability and value of the firm.
CEO is the topmost managerial position in an organization and all the managerial power
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