Balancing control and delegation: the moderating influence of managerial discretion on performance effects of board moni
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Balancing control and delegation: the moderating influence of managerial discretion on performance effects of board monitoring and CEO human capital Yuliya Ponomareva1
© Springer Science+Business Media, LLC, part of Springer Nature 2018
Abstract Building on research within corporate governance and strategic management, this paper explores how managerial discretion stemming from managerial task environment influences the balance between controlling and enabling managerial decisionmaking. Two sets of alternative hypotheses about the moderating effects of managerial discretion on the performance effects of board monitoring and CEO human capital were formulated. The results indicate partial support for governance-driven explanation showing that the association between board monitoring and marketbased performance is strongest in environments characterized by high levels of managerial discretion. The findings also show that CEO human capital is positively associated with market-based performance in low-discretion environments, while in high-discretion environments this relationship turns negative. The central contribution of this paper is to demonstrate that managerial discretion is a useful tool to explain the balance between controlling and enabling managerial decision making. Keywords Corporate governance · Board of directors · Managerial discretion · CEO
1 Introduction Corporate executives have been the focus of research within the fields of corporate governance (Bebchuk et al. 2002; Daily et al. 2003; Weisbach 1988) and strategic management (Finkelstein and Hambrick 1990; Hambrick and Finkelstein 1987; Hambrick et al. 2005), albeit from somewhat different perspectives. The corporate governance perspective, grounded within the agency theory (Jensen and Meckling 1976), has focused on managerial behavior in relation to the decision control function, assuring the alignment of managerial interests with * Yuliya Ponomareva [email protected] 1
Department of Strategy and General Management, ESADE Business School, Ramon Llull University, Barcelona, Spain
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shareholder interests. On the other hand, the strategic management perspective, grounded within the upper echelon theory (Hambrick and Mason 1984), has chiefly addressed the decision management function, examining how executives adapt their firms to external environments. Each of the two research streams has been evolving largely independently of the other (Capasso and Dagnino 2014; Umans and Smith 2013). This artificial separation has obscured a potentially fertile area of development for a more comprehensive understanding of the balance between control and delegation in corporate governance practices. The balance between control and delegation is defined through two central actors within a corporation: those who undertake decisions, namely professional managers, and those who control those decisions, the boards of directors (Fama and Jensen 1983; Finkelstein and Hambrick 1996). These two forces constitute the ke
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