CEO Informal Power, Formal Power and Firm Performance:Evidence from Chinese Listed Private Firms

Abstract

Abstract:

Using the data of listed private firms, this paper investigates the relationship between the informal power and formal power of CEOs and their effects on the firm performance respectively. The empirical study shows:(1) CEOs' informal power, such as the age of CEOs and CEO's serving in other board of directors, are positively and significantly related with their formal power;(2) we obtain an inverted U shape curve between the CEOs' formal power and firm performance. That is to say, the firm performance goes up as the CEOs' formal power increases, but after CEOs' power reaches a certain point, the firm performance decreases if CEO's formal power increases continuously. This paper enriches the connotation of Managerial Power Theory under Chinese context by probing into the relationship between the CEOs' informal power and formal power, and the investigation of relationship between CEOs' power and firm performance also provide more evidences for the Upper Echelon Theory in different culture background. Furthermore, this paper sheds some lights into the firm governance and power allocation within Chinese private firms.

Key words: CEO, informal power, formal power, private firms, firm performance

Liu Jin, Wang Xuejun, Zhang Sanbao, Ye Yunlong. CEO Informal Power, Formal Power and Firm Performance:Evidence from Chinese Listed Private Firms[J]. , 2015, 27(11): 161-169.

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