CEO POWER AND RISK-TAKING: THE MODERATING ROLE OF INDEPENDENT BOARDS, CEO COMPENSATION AND INSTITUTIONAL OWNERSHIP

Abstract

This study investigates the impact of CEO power on managerial risk-taking based on a sample of 362 publicly traded companies in Malaysia. The sample period starts from 2013 to 2019. Findings indicated that CEO power negatively related to risk-taking, which can be justified through the agency theory. Further analysis revealed that CEO compensation and institutional ownership positively moderate the relationship between CEO power and managerial risk-taking. Meanwhile, no significant moderating effect of board independence observed. The results suggest that agency element is found in CEO power where the CEO in power tends to make decision to protect themselves in the safest situation by avoiding risky investment. Confronting with the pro and con of assigning additional CEO power, corporate governance plays an important role to assure the CEO in power does move in parallel with the goal of the shareholders.