Impact of Managerial Entrenchment on Firm Performance

Abstract

This research attempts to analyze the impact of managerial entrenchment on firm performance in the context of KSE-100 index companies in Pakistan. The given study engages the CEO share as the measure of managerial entrenchment and investigate its impact on financial performance of companies. In pertinent to this, regression analysis has been utilized by employing the top performing corporations listed on KSE-100 index. For measurement of firm performance, this study employs the two variables used to quantify firm performance as “return on assets (ROA)” and “Tobin's Q”. This study comprises 318 observations, from 53 non-financial companies of Pakistan Stock Exchange (PSX), over 6 years period (2015-2020) from annual reports. The results of this study indicate that there is a significant negative relationship between the managerial entrenchment measured through CEO share and financial performance measured through ROA and Tobin’s Q. The study has some limitations. The future researchers can add other parameters of managerial entrenchment such as board independence, board compensation, tenure and management duality to get more insights on this association. The research findings are giving implications for managers, investors and shareholders. Managers may adopt techniques that allow them to strengthen their position thus gaining investors’ confidence. This research extends the literature by comprehensively employing the impact of managerial entrenchment on financial performance of companies in KSE-100 index companies that was predominately neglected by the previous researchers in context of Pakistan.

Empirical Evidence of the Impact of Senior Executive Ownership on Firm Performance: Classification of Investments in Equity Instruments under IFRS 9 as a Mediator Variable

“…For example, some studies find that there is a positive impact of managerial ownership on FP (e.g., Ali et al, 2023;Puspitasari and Widiyaningsih, 2023;Wijayanto et al, 2022;Wu and Dong, 2020). Conversely, other studies reported a negative impact of managerial ownership on FP (e.g., Waseem et al, 2023;Salehi et al, 2022;Adamu and Haruna, 2020), and others show that managerial ownership had no impact on FP (e.g., Mevania et al, 2022;Imade and Okoye, 2020).…”

“…Table 2 shows that there are varied results in studies that examined the impact of managerial ownership on the market-based measures of a company. Some studies find a negative impact of managerial ownership on FP (e.g., Martha and Rina, 2023;Waseem et al, 2023;Saniyah and Azmi, 2022). Conversely, other studies have indicated that there is a positive impact of managerial ownership on FP (e.g., Nurjanah, 2022;Yudha et al, 2022;Djanor and Erawati, 2022).…”

“…Some provided empirical evidence that FP is significantly and positively affected by managerial ownership (i.e., Ellyana, 2023;Itan and Chelencia, 2022;Nurjanah, 2022;Puspitasari and Widiyaningsih, 2023;Wijayanto et al, 2022). Conversely, other studies have provided empirical evidence that managerial ownership had a significant and negative impact on FP (i.e., Shah et al, 2022;Sormin and Manona, 2022;Waseem et al, 2023). Moreover, a few studies provided empirical evidence that managerial ownership had no impact on FP (i.e., Fauziah and Winarso, 2023;Gibran and Armansya, 2023;Risa et al, 2022).…”