CEO power and corporate strategies: a review of the literature

CEOs’ structural power emanates from their formal organizational composition and hierarchical command through exercising their legislative rights (Finkelstein 1992; Finkelstein and D’aveni 1994). Most empirical studies have recognized CEO-Chair duality (see Daily and Johnson 1997; Deboskey et al. 2019; Haynes and Hillman 2010; Joseph et al. 2014; Korkeamäki et al. 2017) as the measure of structural power. This is measured as a dummy variable 1 if the CEO is also the board chair. From the organization perspective, CEO-Chair duality brings unity of command through unequivocal and explicit power over the company and proclaiming a definite line of influence (Finkelstein and D’Aveni 1994). Studies on strategy development suggest that organizations spearheaded by formidable leaders can provide strategic directions that can be possible when the same individual is both the CEO and the Chair of the board.

Finkelstein and D’Aveni (1994) argue that vigilant boards characterized by greater independent directors tend to support nonduality as they perceive that duality weakens the supervising mechanism of the board. Fralich and Papadopoulos (2018) document that CEO-Chair duality exerts its power over the board through information asymmetry, thereby preventing the board from making informed decisions. Finkelstein and D’Aveni (1994) report that CEO-Chair duality impedes the board’s power to successfully supervise and control the board’s agenda and directs the board’s focus to fulfill the CEO’s agenda.

A second indicator of CEO structural power pioneered by Bebchuk et al. (2009) and later by Bebchuk et al. (2011) is the CEO pay slice (CPS). This is taken as the ratio of CEO compensation to the total compensation of the top five executives on the board. Bebchuk et al. (2011) assert that CPS is a more objective measure as it accounts for different attributes of the CEO concerning its skills, influence, or power. In addition, CPS indicates the CEO’s power relative to other board members. Sheikh (2018a) measures CPS as a dummy variable 1 if the firm’s CPS is higher than the industry median CPS and 0 otherwise. CPS as a proxy of structural CEO power has been subsequently expended by several studies (see Jiraporn et al. 2012; Li et al. 2016; Liu and Jiraporn 2010; Ntim et al. 2019; Shahab et al. 2020; Sheikh 2019a, 2019b, 2018a, 2018b; Tian and Yang 2014; Usman et al. 2018). Zagonov and Salganik-Shoshan (2018) examine the validity of CPS as an effective measure of CEO power. They advance that CPS wrongly estimates CEO power as it does not control the allocation of pay amongst the top five executives. This is because CPS overlooks the vital evidence enclosed in the compensation data of top executives.

Few studies have also used CEO triality as a measure of structural power. This is a dummy variable of 1 if the same individual is the CEO, the Chair, and the firm’s President (see Adams et al. 2005; Han et al. 2016; Sheikh 2018a, 2018b, 2019a). Harjoto and Jo (2009) has used CEO plurality by taking a categorial variable with value 1 to capture CEO-Chair duality and triality. Tang et al. (2011) and Tang and Crossan (2017) have taken a similar measure that they coined as “percentage of higher titles”. They have applied a reverse coded indicator variable coded as zero implying lower CEO power if the top management team (TMT) has an executive vice president (VP), senior VP, and two VPs.

Several studies have taken board independence to gauge structural power (Abernethy et al. 2015; Choe et al. 2014; Gunasekarage et al. 2020; Han et al. 2016; Kalyta 2009; Kalyta and Magnan 2008; Sheikh 2018b; Zhu et al. 2021). The strength of independent directors to monitor the board is adversely affected by CEO power; hence a powerful CEO leads to a less diligent board (Sheikh 2018b). On the contrary, Abernethy et al. (2015) and Gunasekarage et al. (2020) assert that independent directors would also have fewer disagreements with the CEO due to their prior detachment from firms’ decision-making. Board independence is evaluated by taking the proportion of unrelated directors (Kalyta and Magnan 2008), outside directors (Coles et al. 2001; Kalyta 2009), the proportion of executive directors on the board (Choe et al. 2014), the proportion of independent directors (Abernethy et al. 2015; Gunasekarage et al. 2020), and dependent directors (Han et al. 2016). Sheikh (2018b) has adopted an indicator variable as 1 if the proportion of independent directors is below the median proportion of independent directors.

Several studies have also implemented CEO compensation to measure structural power. Higher CEO compensation indicates that the CEO could influence the board (Bigley and Wiersema 2002; Daily and Johnson 1997; Finkelstein 1992; Westphal and Zajac 1995). Pay differential between the CEOs and other board members indicates CEOs exerting power over top managers (Bigley and Wiersema 2002). Agency theory envisages that powerful CEOs could persuade the remuneration committee to settle substantial compensation not tied to financial performance (Veprauskaitė and Adams 2013). Different studies have used variants of CEOs’ compensation. CEO compensation is measured as CEOs’ total compensation out of the total cash compensation of the next highest-paid officer in the firm (Bigley and Wiersema 2002; Daily and Johnson 1997; Gunasekarage et al. 2020; Lisic et al. 2016); annual total compensation (cash, salary, and bonuses) (Fang et al. 2020; Tang et al. 2011; Tang and Crossan 2017; Veprauskaitė and Adams 2013); average CEO cash compensation by average TMT cash compensation (Abebe et al. 2011).

CEO being the only insider has been taken to evaluate structural power by few studies (Adams et al. 2005; Chiu et al. 2021; Ting 2013), while Lewellyn and Fainshmidt (2017) recognize this measure as a prestige power as it bestows heightened status. Agency theory perceives that the CEO being the only insider will reduce CEO power as this would increase board independence and, thereby, effective board monitoring (Adams et al. 2005; Lewellyn and Fainshmidt 2017). On the other hand, insider CEOs have higher knowledge capital (Chiu et al. 2021), and as the only insider, the CEO would have the power to curb information shared with other directors (Adams et al. 2005; Lewellyn and Fainshmidt 2017). A dummy variable of value 1 captures this if the CEO is an insider and zero otherwise (Adams et al. 2005; Chiu et al. 2021; Ting 2013).

Other structural CEO powers used by a few studies are the CEO pay gap (Jaroenjitrkam et al. 2020; Sheikh 2019a, 2018b; Li 2016) and performance-related bonuses (Veprauskaitė and Adams 2013). The CEO pay gap is the difference between CEO’s total compensation and second highest director’s compensation over CEO’s total compensation (Li 2016). CEO bonus pay is determined by a categorical variable 1 if the CEO gets a performance-related bonus and zero otherwise.

Finkelstein (1992) observes that ownership grants CEOs to implement higher authority to make strategic decisions. The two most popular ownership power measures adopted by extant studies are CEO stock ownership and the CEO as the firm’s founder. Stock ownership has been recognized as a vital measure of upper-echelon power (Bigley and Wiersema 2002; Daily and Johnson 1997; Finkelstein 1992). Morck et al. (1988) document that CEO stock ownership would increase their voting rights, which could give them substantial control in director nomination. Ownership over 5 percent could lead to CEO entrenchment (Morck et al. 1988) and could guard them against internal monitoring mechanisms. A higher ownership stake could also give CEOs legitimate rights to decide on firms’ investment policies (Dowell et al. 2011), and increased CEO stock ownership could diminish the chances of involuntary turnover (Sheikh 2019a). CEO stock ownership is proxied by the percentage of stocks obtained by CEOs. Haynes and Hillman (2010) have taken a slightly different measure of ownership power: the proportion of CEOs to board equity holdings.

The second measure of ownership power that many studies have used is founder-CEO or CEO from the founding family. Founder-CEO maintains a level of formal power (equity ownership) and informal power (founder or relative of founder) that allows proclaiming strategic changes within the firm (Buyl et al. 2011; Daily and Johnson 1997; Dowell et al. 2011; Sheikh 2018a). Fahlenbrach (2009) observes that founder CEOs lower agency costs because they consider the firm as their life’s work and are driven to maximize its value. CEO founder or from the founding family possess substantial authority over the business’s strategy, culture, and aspirations (Le et al. 2022). Founder CEOs are perceived as internally hired and have a different type of motivation than other CEOs (Adams et al. 2005), have substantial sway on the board of directors (Sheikh 2018a; Walls and Berrone 2017), are unlikely to be removed from their position and may have a different perception of risk than other CEOs (Fahlenbrach 2009). Several studies have used categorical variable, one for founder CEOs and zero otherwise (Abebe et al. 2011; Adams et al. 2005; Buyl et al. 2011; Cormier et al. 2016). Cormier et al. (2016) and Jaroenjitrkam et al. (2020) adopt a different version of the founder CEO measure: the CEO’s family owns more than a 5% share. Daily and Johnson (1997) have also used a CEO with the same last name as the third category of founder measure in addition to the above two.

A third measure of ownership power that has been used by a few studies is institutional ownership (Abernethy et al. 2015). Outside investors with significant stock ownership are expected to retrieve internal and external firm information, tend not to be influenced by the board of directors and enable the transfer of power from management to the shareholders (Lewellyn and Muller-Kahle 2012). Higher institutional ownership implies higher voting rights to nominate board members and greater supervision of executive compensation (Lewellyn and Muller-Kahle 2012) and, thereby, a more rigorous inspection of managers’ power (Haider and Fang 2018). This is the percentage of shares obtained by an individual other than the CEO (Abernethy et al. 2015; Lewellyn and Muller-Kahle 2012; Pollock et al. 2002).

Other measures of ownership power that few studies have used are outside stock ownership (Kalyta 2009; Kalyta and Magnan 2008) or top outsider ownership (Lewellyn and Muller-Kahle 2012); CEO blockholders¹ (Kalyta 2009; Kalyta and Magnan 2008); high CEO ownership² (Jaroenjitrkam et al. 2020). Increased ownership of outside directors would make them more watchful of CEOs’ behaviors. Outside directors are also expected to possess superior internal and external information. Therefore, they are unlikely to be swayed by the CEO (Lewellyn and Muller-Kahle 2012) and would have higher voting rights (Finkelstein and D’Aveni 1994). Chen (2014) has taken this as the ratio of shares owned by the CEO to outside directors.

CEO’s ability to tackle business contingencies increases with their time on the board as they can develop more excellent contacts and relationships with different stakeholders (Finkelstein 1992). CEOs are also likely to amass social capital and knowledge with longer tenure, which could be a source of informal power (Finkelstein and D’aveni 1994; Greve and Mitsuhashi 2007). Increased tenure would lead CEOs to have greater knowledge of company information, and they could limit the board’s accessibility of this information (Daily and Johnson 1997; Combs et al. 2007). Simsek (2007) also observes that increased CEO tenure could lead to increased social gathering with directors, other firm managers, and constituents that brings legitimacy to engage in risky ventures. CEO tenure could also alleviate board monitoring (Graham et al. 2020; Ryan and Wiggins 2004) and heighten managerial entrenchment leading to divergence of corporate resources (Sheikh 2019a). Most studies that have used CEO tenure to gauge CEO expert power have measured it in terms of the CEO length (in years) in the post (see Abernethy et al. 2015; Buyl et al. 2011; Chiu et al. 2021; Fang et al. 2020; Gunasekarage et al. 2020; Park et al. 2018). In contrast, Han et al. (2016) and Sheikh (2018a) use a dummy variable of value 1 if the CEO tenure is more than the industry median or CEO tenure is more than the median tenure of the whole sample (Mollah and Liljeblom 2016). Huang and Gao (2022) have considered CEO tenure as structural power.

Expert power could emanate from in-depth knowledge and familiarity with the salient elements of the firm (Finkelstein 1992). Few studies have used the number of years worked in the firm in different roles (Finkelstein and D’aveni 1994; Daily and Johnson 1997; Fralich and Papadopoulos 2018; Kalyta 2009; Kalyta and Magnan 2008) or number of years worked in the board (Walls and Berrone 2017) or CEOs’ holding executive positions (Gunasekarage et al. 2020) or CEOs’ holding roles in board committees (Abernethy et al. 2015) as measures of expert power. They assert that when CEOs serve the board in other roles, they have a stronger bond with the board to control and mobilize resources. Le et al. (2022) affirm that CEOs with financial expertise can manage earnings and have taken a categorical variable as 1 if the CEO has financial expertise and zero otherwise. Zhang and Rajagopalan (2010) adopt different categories³ of functional background to capture expert power. Kalyta and Magnan (2008) use the unrelated director’s tenure as another measure of CEO power, while Haider and Fang (2018) take CEO professional certificates as a measure of expert power. Finkelstein and D’aveni (1994) have taken another measure of expert power to represent CEOs’ unique skills and expertise, and this is measured as the difference between the functional backgrounds of the TMT and the CEO weighted by the size of the board.

Buyl et al. (2011) identify two more sources of expert power: CEO generalist and CEO as a marketing specialist. Generalist CEOs are likely to have shared perception and trust with the TMT, and CEOs as marketing specialists are particularly useful for sectors with frequent product innovation. These are used as categorical variables. Lewellyn and Muller-Kahle (2012) use another measure of CEO expert power: outside directors’ tenure. This study affirms that the long tenure of outside directors would give them enhanced information about the firm, and so they can have a better assessment of CEO decisions. This is evaluated by the number of years each outside director was a board member.

CEO prestige is an informal power that emanates from the institutional environment and the CEO’s interaction with individuals in other organizations holding similar authority (Finkelstein 1992; Finkelstein and D’Aveni 1994). Lewellyn and Muller-Kahle (2012) advance that CEOs with prestige power will face less scrutiny from outside directors as their prestige power will measure their successful leadership. Most extant studies have measured CEO prestige power by taking the number of directors’ positions held by the CEO in other organizations (see Abebe et al. 2011; Altunbas et al. 2020; Bigley and Wiersema 2002; Daily and Johnson 1997; Finkelstein and D’Aveni 1994; Fralich and Papadopoulos 2018; Gunasekarage et al. 2020; Haynes et al. 2019; Lewellyn and Muller-Kahle 2012; Ting 2013) or as a dichotomous variable (Haider and Fang 2018). Fralich and Papadopoulos (2018) and Lewellyn and Fainshmidt (2017) have taken another indicator of prestige power: the number of non-profit board directorships. Fralich and Papadopoulos (2018) use a third measure, the relative prestige of the firm where the CEO holds office. This is possibly because outside directorship is viewed as CEO’s networking ties and embeddedness within the business elites (Lewellyn and Muller-Kahle 2012). CEOs could expand their network through their outside directorship, allowing them to gain access to strategic information and hence reduce asymmetric information (Fralich and Papadopoulos 2018). Finkelstien and D’Adeni (1994) assert that CEO prestige power could increase entrenchment leading to centralized structures like CEO duality. Increased CEO prestige power could lead vigilant boards to appoint an independent chairperson to counter or balance the supremacy of the CEO.

Another source of prestige power is CEO’s attendance in prestigious or elite universities for their undergraduate and postgraduate degrees. Some studies have taken this as a categorical variable (Finketsien and D’aveni 1994; Bigley and Wiersema 2002; Chikh and Filbien 2011; Daily and Johnson 1997; Dowell et al. 2011; Fang et al. 2020; Haider and Fang 2018; Ting et al. 2017; Zhang and Rajagopalam 2010; Zhu et al. 2021) or as the number of elite universities the CEO has attended (Gunasekarage et al. 2020; Haynes et al. 2019) or if CEO’s qualification is more than the median qualification (Mollah and Liljeblom 2016).

Several extant studies have also taken CEO age as a gauge of prestige power since, with age, CEOs are likely to gather more skill and knowledge (Haider and Fang 2018; Mollah and Liljeblom 2016; Ntim et al. 2019; Zhang and Rajagopalam 2010). Haider and Fang (2018) consider CEO age and gender as CEO demographic power.

Kalyta and Magnan (2008) and Abernethy et al. (2015) have taken board size to measure CEO power, as large boards could lead to a fall in the board’s efficiency in controlling CEO power. Other determinants of CEO power are CEO acquisition experience (Chikh and Filbien 2011); CEO unforced turnover (Onali et al. 2016); ownership concentration (Abernethy et al. 2015); CEO reputation (Ntim et al. 2019); political connection (Zhu et al. 2021); CEO is CFO (Tan and Liu 2016); staggered board (Pollock et al. 2002); CEO duality and nomination committee and CEO plurality (chair and nomination committee) (Harjoto and Jo 2009).

The most widely referred theory about CEO power literature is agency theory. Based on this theory, studies have found that CEO power leads to lower firm value and performance (Bebchuk et al. 2011; Veprauskaitė and Adams 2013; Duru et al. 2016); needs increased monitoring by outside directors (Combs et al. 2007), could lead to entrenchment (Finkelstein and D’Aveni 1994); lower leverage (Jiraporn et al. 2012; Chintrakarn et al. 2014); poor credit rating and higher bond yields (Liu and Jiraporn 2010); lower bank risk-taking (Pathan 2009); moderates the positive relation between board strength and firm strategy (Tuwey and Tarus 2016); lower dividend payout (Chintrakarn et al. 2018); use less equity-based compensation that weakens board monitoring (Ryan and Wiggins; 2004); lower CSR exposure and alleviates the positive effect of board capital on CSR exposure (Muttakin et al. 2018); reduces the effect of ESG disclosure on market-based risk than accounting-based risk (Menla Ali et al. 2023); positively influences earnings management (Le et al. 2022); lower R&D investment (Naaman and Sun 2022); lower entrepreneurial orientation (Saiyed et al. 2023); lower idiosyncratic volatility (Tan and Liu 2016); positively related to CSR (Pucheta-Martínez and Gallego-Álvarez 2021); lower corporate sexual orientation policies (Brodmann et al. 2021).

On the other hand, some studies have refuted agency theory. Some of these studies advance that agency problems through CEO power could be mitigated by board monitoring (Haynes et al. 2019); longer-term CEO pay, bigger TMT, and CEO non-duality (Sanders and Carpenter 1998); CEO ownership power (Pollock et al. 2002); market discipline (Jaroenjitrkam et al. 2020). Shui et al. (2022) contend that CEO power in weak boards should be complemented with institutional ownership to increase environmental innovation. Agency theory is refuted by some studies, which find that powerful CEOs have lower CSR engagement (Sheikh 2019a; Maswadi and Amran 2023), take more risk in the presence of discipline through increased market competition and strong corporate governance (Sheikh 2019b), no significant effect on pay performance (Luo 2015), positive effect on firm performance (Mollah and Liljeblom 2016), engage in more exploitative innovation (Sariol and Abebe 2017; Sheikh 2018a), increases firm value (Sheikh 2018b), positively affects firm performance and institutional ownership (Saleh et al. 2022), CEO directorship improves firm performance (Tien et al. 2013). Boards with concentrated ownership have higher second-tier agency problems (board power and vested interests of other directors) than first-tier agency problems (CEO power and their vested interests) (Ntim et al. 2019).

The second most popular theory is managerial power or rent extraction theory. In support of this theory, some studies have found that CEO managerial power is positively related to CPS, and where there is a cap in salary, CEO power causes rent extraction through stock-based compensation (Choe et al. 2014), leads to positive but relatively small pay-for-performance support (PPS) (Ntim et al. 2019), lesser decrease in bonus compensation, increase in equity compensation and greater chances of getting bonus when there are layoffs in their firms (Henderson et al. 2010), positively related to stock price crash (Shahab et al. 2020), positively related to bank CEO incentive pay (Tian and Yang 2014), causes CSR decoupling (Shahab et al. 2022), takes lesser environmental initiatives (Al-Shaer et al. 2023), increases CEO compensation and the gap between CEO and other executives’ pay (Zhu et al. 2021; Joura et al. 2022) and is positively related to long term pay (Tien et al. 2013). Others have reported that economic terms could not explain powerful CEOs’ excessive compensations but could be attributed to their power over the board (Hill et al. 2016) and rent extraction is contingent on the extent of transparency of management compensation (Kalyta and Magnan 2008). Refuting this theory, some studies show that CEO power does not lead to an increase in executive compensation in Chinese banks (Luo 2015); does not increase CPS overtime for newly appointed CEOs (Bugeja et al. 2017), is positively related to firm risk (Zou et al. 2021), and negatively affects CEOs’ long term and short term pays (Tien et al. 2013).

Another theory pertaining to CEO power literature, particularly on CEO power and executive compensation literature, is grounded in optimal contract theory and dynamic bargaining theory. In support of this theory, studies find that pay for performance sensitivity improves in companies with powerful founding and shareholding CEOs (Ntim et al. 2019). CEO-chair age dissimilarity could restrain CEOs’ rent-seeking behavior (Zhu et al. 2021), and firms tend to reduce excess CPS (Bugeja et al. (2017). Refuting this theory, Boyer (2005) argues that this theory is likely to fail as powerful managers use their power to convert stock options into financial market incentives.

The fourth theory is the upper echelon theory. Grounded in this theory, studies find that CEO long tenure indirectly leads to positive risk-taking through CEO power on TMT risk-taking tendencies (Simsek 2007), CEO equity ownership has a positive effect on CSR initiatives (Jia et al. 2022), CEO heir apparent experience influence the cognitive orientation that leads them to take decisions that maintain the organization’s status quo instead of corporate refocusing (Bigley and Wiersema 2002), and firms’ strategic choices are swayed by CEO and TMT attributes (Byun and Al-Shammari 2021 and Sun and Skousen 2022). Refuting this theory, Tan and Liu (2016) find that CEO experience measured by long tenure could lead to entrenchment.

Another theory related to CEO power is the approach/inhibition theory of power. This theory suggests that power could trigger an individual’s neurobiological approach to focus on positive outcomes and ignore the negative consequences. Based on this theory, Lewellyn and Muller-Kahle (2012) find that CEO power leads to excessive risk-taking, and Zhang et al. (2022) find that CEO power promotes environmental innovation. Refuting this theory, Zhou et al. (2021) find that CEO power disinhibition could thwart strategic change, and Saiyed et al. (2023) show that CEO power reduces the effect of entrepreneurial orientation on firm performance.

The next related theory is organization theory, and based on this theory, studies find that powerful CEOs are more confident in their decision-making and undertake risky decisions that could enhance firm performance (Sheikh 2018a), significantly impacts on firms’ CSR policies (Breuer et al. 2022), powerful CEOs take more extreme decisions whereas decisions taken by a larger group is more moderate (Adams et al. 2005 and Haider and Fang 2018), powerful CEOs with strong boards improves firm performance (Shabir et al. 2023). On the other hand, Zou et al. (2021) find mixed evidence on CEO power and firm risk.

In support of the stakeholder theory, Pucheta-Martínez and Gallego-Álvarez (2021) and Al-Shaer et al. (2023) find that CEO compensation is linked to CSR initiatives, and Li et al. (2018) report that Environmental, Social, and Governance (ESG) score is more value enhancing in the presence of powerful CEOs. Refuting this theory, Li et al. (2016), Muttakin et al. (2018), Harper and Sun (2019), Maswadi and Amran (2023) find that powerful CEOs have lesser engagement in CSR activities. Jia et al. (2022) find mixed evidence between CEO power and CSR disclosure.

In support of the compensation transparency theory in Panel B, Kalyta (2009) suggests that CEO power determines the supplemental executive retirement plan (SERP) benefits whereas transparency in compensation is driven by economic factors. In support of resource dependence theory, studies find that powerful CEOs could strengthen the effect of board power on R&D investment (Haynes and Hillman 2010; Chen 2014), CEO power is required in firms that aim to cater to customers’ needs and firms operating in competitive product markets with higher cultural power distance (Krause et al. 2016), CEO power moderates the effect of board director attributes on CSR disclosure. Ting (2013) finds support for common-sense theory and finds that when successor CEOs have similar power as predecessors, turnover announcements generate positive abnormal returns.

In support of director reputation theory, studies find that powerful CEOs show aggressiveness and optimism in their earnings announcement tone (DeBoskey et al. 2019), tend to hire successor CEOs who have similar demography as them (Zajac and Westphal 1996a, b), and attract directors from boards with governance change (Zajac and Westphal 1996b). Colak and Liljeblom (2022) find that CEOs’ long tenure could be detrimental to firm performance even after the long-tenured CEO is replaced. Chiu et al. (2021) find support for efficiency theory and show that powerful CEOs with knowledge capital lead to an increase in firm value. Lewellyn and Fainshmidt (2017) show that discretion arising from CEO duality could complement with firm and industry discretions to enhance firm value, thus supporting governance theory. Based on human capital theory, Huang and Gao (2022) show that CEO power leads to reduced debt policy persistence. In support of impression management theory, Sun et al. (2022) find that the positive association between CEO power and reading difficulty is due to bad operating performance. Harjoto and Jo (2009) report that CEO power favors firm performance in the initial stages of the business and is detrimental to firm performance in more advanced or mature stages of business, thus supporting life-cycle theory. Grounded on managerial discretion theory, Schopohl et al. (2021) find that lower-powered CEOs and diverse boards could lead female CFOs to reduce leverage in organizations.

Managerial entrenchment theory finds support from Park et al. (2018), who show that the negative relation between CEO hubris and firm performance is aggravated by CEO power. Grounded in power circulation theory, Combs et al. (2007) find that powerful CEOs could maintain a dominant coalition in the board and the strategic decisions taken by weaker CEOs result in poor outcome (Adams et al. 2005; Brahmana et al. 2021). Based on prospect theory, Tang and Crossan (2017) and Tang et al. (2011) find that troubled firms might take recourse to risky strategies by hiring dominant CEOs.

Several studies have found support for self-categorization or social categorization theory. Based on this theory, studies report that powerful CEOs are less likely to promote the heir apparent (Cannella and Shen 2001), less likely to share information with TMT (Buyl et al. 2011), prefer to hire directors of the same demography (Westphal and Zajac 1995), and non-CEO executives tend to exit firms where there is demographic dissimilarity (Zhang et al. 2011).

In support of the social capital theory, Greve and Mitsuhashi (2007) advance that powerful CEOs’ social capital helps them to make strategic decisions without reliance on their subordinates. Based on structural elaboration theory, Joseph et al. (2014) show that a CEO-only board might embrace board independence but could cause CEO entrenchment.

Lewellyn and Fainshmidt (2017) find partial support for stewardship theory and show that only when CEO duality is linked to certain other CEO powers this outcome is accomplished. Shareholder theory is refuted by Ahsan et al. (2022) as they report that powerful CEOs could create firm value through CSR activities when CSR practices align with firms’ objectives.

We have found the following studies unrelated to any of the theories discussed in Sect. 3. We have presented all these studies in Tables 3, 4, 5, 6. Table 3 discusses the following studies under CEO power and firm performance that are not related to any theory—Abebe et al. (2011), Ahsan et al. (2022), Cormier et al. (2016), Daily and Johnson (1997), Fang et al. (2020), Gunasekarage et al. (2020), Han et al. (2016), Li (2016), Tang (2021), Ting et al. (2017), Usman et al. (2018) and Table 4 shows the following studies under CEO power and executive compensation that are not related to any theory–Al-Dhamari et al. (2022), Joura et al. (2022). Table 5 presents the following studies on CEO power and firm risk-taking that are not related to any theory—Chintrakarn et al. (2015), Huang and Gao (2022), Korkeamaki et al. (2017), Pour et al. (2023), Zhao et al. (2023). Table 6 reports the following studies under CEO power and corporate strategies that are not related to any theory—Al-Shaer et al. (2023), Bristy et al. (2022), Brodmann et al. (2022), Dowell et al. (2011), Dutta et al. (2011), Fahlenbrach (2009), Fralich and Papadopoulos (2018), Harper et al. (2020), Kim et al. (2017), Lo and Shiah-Hou (2022), Onali et al. (2016), Urban (2019), Walls and Berrone (2017), Zajac and Westphal (1996a, b), Zagonov and Salganik-Shoshan (2018).

Sanders and Carpenter (1998) report that long-tenure CEO pay, CEO non-duality and large boards help firms to deal with information-processing demands and agency problems stemming from the internationalization process. Bigley and Wiersema (2002) attempt to integrate corporate governance research with upper echelon theory and shows that powerful CEOs maintain the status quo instead of refocusing firms’ business portfolio as heir apparent experience increases. However, when CEO power is measured by CEOs’ prestige power, that is, the number of outside directorships held by the CEO, this result is negated. Deriving from resource dependence theory, Haynes and Hillman (2010) explore how the breadth and depth of board capital impact firms’ strategic change and whether CEO power curbed this. The results partially support that CEO power moderates the consequence of board capital breadth and has no impact on board capital depth. Specifically, CEO power curbs the influence of board heterogeneity on strategic divergence.

In another study of CEO power and governance structure, by constructing a CEO power index using ten distinctive characteristics, Lisic et al. (2016) show that the effectiveness of audit committee decreases with CEO power, and this is more pronounced when CEOs extract more rent from the firm through insider trading. In a similar vein, Kim et al. (2017) looks into the post-Sarbanes–Oxley period and find that having an accounting expert on the audit committee could improve the auditing process as it leads to a comprehensive audit process. However, CEO power acts as an impediment to this process. Extending this line of research, Al-Dhamari et al. (2022) advance that powerful CEOs weaken the favorable impact of the overlap between audit and remuneration committees on the cost of debt.

Combs et al. (2007) adopt event study methodology to measure the interaction of board composition and CEO power in the event of CEO deaths. They report that in the event of deaths of high (low) powered CEOs, the market reacted favorably (unfavorably) when the boards were governed by inside directors and unfavorably (favorably) when outside directors governed the boards. Overall, their results suggest that although regulation favors board independence, it may not be favorable to shareholders. Hence, the level of CEO power should be considered while determining board independence. In a related study, Dowell et al. (2011) advance that one size fits all governance structure is unsuccessful in the context of examining the collapse of publicly traded internet firms. Specifically, this study conducts event history analysis and shows that CEO power and smaller boards create a unity of command which is advantageous for fast decision-making for firms facing financial distress. Deriving from theories of institutional logic and structural elaboration, Joseph et al. (2014) assert that CEO-only structure is prevalent among firms with more insiders in the board. This study further contends that although a CEO-only structure is in line with the shareholder value logic, it is favored by powerful CEO to remove insiders who are voices of dissent.

Another study on CEO power and board leadership suggests that CEO power diminishes the positive influence of board leadership on firm strategy (Tuwey and Tarus 2016). Graham et al. (2020) investigate CEO power and board dynamics and report that when performance is weak, powerful CEOs are unlikely to be removed, and in the event of the death of powerful CEOs, market reaction is positive. This study also finds that board independence increases with the hiring of a new CEO, as new CEOs are likely to have a lower power to bargain, and board independence decreases with an increase in CEO tenure. Lewellyn and Fainshmidt (2017) suggest that CEO duality or non-duality is strengthened or counterbalanced by other types of power embedded in the CEO. They show that CEO duality bundled with information power provides effective corporate governance when it is moderated by high organizational and industry discretion. Conversely, CEO non-duality is effective when high organizational and industry discretion is absent. Graham et al. (2020) show that CEO power measured by tenure is inversely linked to board independence, and this gets weaker during uncertainty. They also find that higher CEO tenure increases the likelihood of CEO duality and reduces the chance of the CEO getting replaced in the event of poor firm performance. In addition, they show that stock market reaction is positive when powerful CEOs die, consistent with the results of Combs et al. (2007) discussed above.

Krause et al. (2016) investigate cultural power distance and CEO power and advance that shareholders determine firms’ legitimacy, and customers also have a crucial role. In this context, they argue that customers of firms competing in a high-power-distance culture view increased CEO power as legitimate, and this is more prevalent for firms that rely on their customers. Another study on CEO and culture investigates hand-collected data from 37 countries and observes that CEO retention is higher in hierarchical countries (Urban 2019). These CEOs have idiosyncratic management styles, and their greater power reduces firm governance.

Bristy et al. (2022) examine the impact of CEO power on labor-friendly policy. According to their findings, CEO power, captured by a CEO power index, is negatively related to labor-friendly policy without affecting firm value. However, powerful CEOs invest more in labor-friendly programs in the cases of a competitive market, innovation-intensive firms, and union-intensive industries, resulting in higher firm value.

Some of the earlier studies by Westphal and Zajac (1995) and Zajac and Westphal (1996a, b) report that when CEOs are more (less) powerful than the board, new directors are hired with similar demographic similarities as the CEOs (board). This supports the social psychological perception that CEOs and boards use their power to hire directors with similar philosophies to avoid the chances of dissent. However, this result is at odds from a political standpoint as studies on corporate governance attribute political motives only to CEOs and not to board members. Another study finds that in firms with inferior performance, outside directors facilitate the exit of an heir apparent to restrict the sway of incumbent CEOs. In contrast, outside directors protect the heir apparent for firms with high performance and prevent the incumbent CEOs from abusing power (Cannella and Shen 2001). Horner and Valenti (2012) show that incoming and outgoing CEOs are the strongest players in the CEO nomination process. Firms looking to have CEO-Chair duality would hire CEOs with prior Chair experience, and outgoing CEOs with long tenure reduce the chance of CEO-Chair duality for incoming CEOs, suggesting that powerful CEOs can manipulate the succession process. Zajac and Westphal (1996b) show that powerful directors who enjoyed significant control over the board would like to move to companies where they can exert similar control. In addition, this study finds that directors who have faced governance changes prefer to move to firms with powerful CEOs and weaker boards.

Using a model of project appraisal, Baldenius et al. (2014) find that shareholders tend to nominate more advisors to the board to curb CEO entrenchment. In contrast, powerful CEOs could dictate the nomination process and create a monitor-heavy board to prevent information cascading to shareholders. This study reports that board monitoring negatively affects firm performance. However, the relationship is driven by firm attributes like agency issues. Zhang et al. (2011) report that non-CEO executives are expected to be dismissed and exit from TMT if they have higher age and tenure than CEOs, and this is exacerbated by firms with founder CEOs and poor performance and alleviated by CEO ownership.

Fralich and Papadopoulos (2008) report that CEO power leads to lower bid premiums in a merger sample of S&P 500 firms during the financial crisis. They attribute this to powerful CEOs adopting more risk-averse behavior driven by heightened information asymmetry. Balmaceda (2009) suggests a model of merger where gains of mergers were distributed between buyers and sellers as a generalized Nash bargaining solution. In addition, powerful CEOs use their network to get information about target firms, enabling them to evaluate the attributes of the target firms better. In a related study, taking all four categories of CEO power coined by Finkelstein (1992), Chikh and Filbien (2011) show that powerful CEOs had a propensity for takeover deal completion even when the market signaled negative announcement period returns. Similarly, Dutta et al. (2011) also document that powerful CEOs engage in more acquisitions and show that CEO power may not lead to value-destroying acquisitions as M&A announcement period returns are unrelated to CEO power. Greve and Matsuhashi (2007) have used two proxies of CEO power: CEO social capital, which has been proxied by CEO tenure, and formal power concentration, which is the proportion of executives hired by the CEO during their tenure. They show that CEO tenure has a favorable effect on diversification, whereas the proportion of executives appointed is ineffective to reverse diversification. Falenbrach (2009) reports that investment in firms with founder CEOs generates higher returns and higher firm valuations than firms with successor CEOs, which is robust across various firm characteristics. This study also observes that founder CEOs invest in more research and development, capital-intensive projects, and more focused mergers and acquisitions. Lo and Shiah-Hou (2022) find that increased CEO power reduces overinvestment and attribute this to CEOs’ risk averseness. They also link this result to powerful CEOs’ ability to make prudent investment decisions.

Using data from S&P 500 firms, Sariol and Abebe (2017) show that explorative firm innovation rises with CEO power, which is prominent for firms with outsider CEOs. In a related study, Sheikh (2018a) observes that CEO power leads to increased firm innovation, as shown by patents and citations, only for firms characterized by high product market competition. This study concludes that product market competition alleviates agency problems and encourages CEOs to make decisions that would create shareholder wealth. Jaroenjitrkam et al. (2020) investigate S&P 1500 firms and report that CEO power is reduced by higher product market competition, and this is exacerbated in firms with entrenched management, with a reduction in CEO ownership and analyst coverage and those earning windfall performance. Lo and Shia-Hou (2022) find that powerful CEOs with greater discretion tend to overinvest, and it is the reverse for powerful CEOs with higher risk aversion and higher managerial skills.

Onali et al. (2016) report that powerful CEOs of European banks pay low dividends to maintain the capital position of the banks and do not have incentives to pay high dividends to discourage monitoring by minority shareholders. In a related study, Chintrakarn et al. (2018) show that CEO power negatively impacts dividend payout. They interpret this result in terms of agency theory to suggest that higher dividends reduce free cash flows for CEOs, and hence powerful CEOs are reluctant to pay higher dividends. Sheikh (2022) documents that CEO power (captured by an index including CEO pay slice, tenure, equity ownership, and job titles) is positively related to the likelihood of paying and increasing dividends in low profitability and high cash flow volatility. Moreover, powerful CEOs are more likely to pay dividends to gain a reputation in capital markets and raise funds externally at favorable terms.

Baker et al. (2019) examine CEO power relative to Chief Financial Officer (CFO) power in the context of accruals earnings management (AEM) and relative earnings management (REM) both in the pre-Sarbanes–Oxley Act (SOX) and post-SOX eras. In the pre-SOX period, this study discerned that when the CEO is powerful compared to CFO, AEM is greater than REM and vice versa. However, in the post-SOX period, they find that the consequence of CEO power on AEM is reduced, whereas the effect of CFO power on REM remained unchanged. They also find that CFOs’ power could obstruct the AEM choice in both the pre-SOX and post-SOX period, whereas the REM choice of a powerful CFO is curbed by powerful CEOs only in the pre-SOX era. In another study of corporate earnings, DeBoskey et al. (2019) argue that powerful CEOs also use powerful rhetoric and positive tone in their earnings management, and this is moderated by board oversight for CEOs with longer tenure.

Sun et al. (2022) report a positive relationship between CEO power and annual report reading difficulty (i.e., difficulty in reading and understanding the annual report). This relationship is moderated by earnings performance or corporate governance and gets stronger in the case of firms that display lower financial reporting quality or shorter-tenured CEOs.

Studies on powerful CEOs and corporate social responsibility (CSR) observe that CEO power is inversely linked to firms’ decision to be involved in CSR, thereby corroborating the legitimacy of the stakeholder theory of CSR and showing that CSR activities increase firm values (Harper and Sun 2019; Li et al. 2016). Harper and Sun (2019) also find that female CEOs are more involved in CSR activities than their male counterparts. In a similar vein, Muttakin et al. (2018) report that CEO power negatively affects CSR disclosures and lowers the impact of board capital on CSR practices. Sheikh (2019a) also reports this result and further contends that structural and ownership dimensions of CEO power adversely affect CSR, while expert power bears no influence on CSR. Using a large international sample, Breuer et al. (2022) investigate the interaction of organizational and external factors and report that powerful CEOs tend to engage in CSR activities that lead to a fall in firm value when given more discretion. They assert that the main motivation for CEOs to engage in CSR is to enhance their reputation. On the contrary, Pucheta-Martínez and Gallego-Álvarez (2021) report that CEO power is positively related to CSR disclosure, and this relationship is reinforced when CEO compensation is linked to shareholder return. Maswadi and Amran (2023) find that CEO power moderates the relationship between board capital attributes and CSR disclosure (CSRD) quality. This study also finds that directors’ political ties are negatively associated with CSRD quality. Walls and Berrone (2017) assert that in the presence of shareholder activism, CEO power plays a vital role in environmental performance, while only CEO expert power contributes towards environmental activism when there is no shareholder activism. This study has introduced several novel measures of CEO power related to environmental issues, as discussed in Sect. 2. Al-Shaer et al. (2023) report that CEO managerial power measured by CEO duality and number of executives on the board has a positive effect on environmental performance, and this is greater in firms with more independent boards and diverse boards, in firms that are not loss-making and those which operates in environmentally sensitive sectors. However, CEO legitimate power measured by CEO tenure does not affect firms’ environmental performance. In related research, Zhang et al. (2022) find that CEO power positively impacts environmental innovation, which is greater in the presence of independent boards and higher market competition. Shui et al. (2022) report that both powerful and weak CEOs can engage in environmental initiatives when a suitable board and ownership structure complements them. This study also contends that CEOs with formal power should be monitored, and boards with strong industry connections could balance less powerful CEOs. Shahab et al. (2022) document that CEO power positively influences CSR decoupling. Jia et al. (2022) report that firm visibility, which is the scrutiny firms face from investors, explains the relationship between CEO power and CSR. Specifically, this study finds that firm visibility moderates the negative relation between CEO structural power and CSR and increases the positive relation between CEO expert power and CSR.

Chen (2014) finds that CEO power substantiates the favorable impact of board capital on R&D investment. Naaman and Sun (2022) observe a negative relationship between CEO power (using alternative proxies) and R&D investment, indicating that firms with more powerful CEOs are less likely to make R&D investments, and CEO power impact being stronger for firms with weaker corporate governance.

Jiraporn et al. (2012) find that powerful CEOs adopt a low level of leverage to evade disciplinary procedures linked to debt financing. Using a sample over 20 years, Chintrakarn et al. (2014) report that the relation between CEO power and capital structure is non-monotonic and find that powerful CEOs avoid leverage while CEOs with weaker power do not evade leverage. This study advances that CEOs become self-serving at higher power levels, thereby leading to agency problems. Schopohl et al. (2021) report that female CFOs tend to take lower leverage when the CEO is less powerful, the board is more diverse, and when the CFOs are externally appointed.