The Influence of CEO Hubris on Firm Performance in Indonesia: The Moderating Effects of CEO Power and Board Vigilance

Abstract

Past studies on CEO hubris has found that board vigilance is effective in managing the negative outcome of hubris. Some studies found CEO non-duality and independent director representation are effective in decreasing the damage of hubris. However, these studies have only explored the causal relationship of hubris and firm performance in the one-tier corporate governance setting. This study analyzed the influence of CEO hubris on firm performance in Indonesia by taking into account the CEO-board power dynamics. Indonesia adopts the two-tier corporate system where the board is divided into the board of directors and commissioners. Through 99 public listed companies, this study found that hubris in Indonesian CEOs contributes well to firm performance. Moreover, a bigger commissioner board is effective in strengthening the positive influence of hubris on firm performance in Indonesia. Furthermore, this study hints that two-tier corporate governance is more efficient in controlling hubris than the one-tier system.

Can Ceo Power Moderate the Influence of Internet Financial Reporting on Market Reactions?

“…So for companies, IFR will more often be managed by a work unit responsible for managing information on the company's website. This research's results aligned with (Rizka & Hani Handoko, 2020), who stated that CEO power did not significantly moderate the CEO's influence on company performance, which can be caused by the low average power possessed by CEOs in Indonesia. The presence of a Powerful CEO will tend to provide transparent information (Armstrong et al, 2012).…”

CEO hubris and Islamic banks’ performance: Investigating the roles of Sharia board vigilance and CEO power

“…The results show that CEO hubris is positively correlated with firm performance (Rizka & Handoko, 2020). They argue that the high power distance and collectivist culture in Indonesia limit CEOs' ability to be overconfident and inclined to prove their abilities (Rizka & Handoko, 2020). This study agrees with this argument even though hubris behavior is an act that is prohibited according to sharia.…”

“…In empirical studies, a "robustness check" is a common exercise in which the paper examines how certain "core" regression coefficient estimates behave when the regression specification is changed by adding or removing The results of this study are not in line with Rizka and Handoko (2020) who, using a sample of 100 public companies in Indonesia, observed the behavior of CEOs with various hubris characters. The results show that CEO hubris is positively correlated with firm performance (Rizka & Handoko, 2020). They argue that the high power distance and collectivist culture in Indonesia limit CEOs' ability to be overconfident and inclined to prove their abilities (Rizka & Handoko, 2020).…”

“…Park et al (2018) and Rizka and Handoko (2020) looked at CEO hubris as an antecedent that interacts with CEO power in influencing financial performance in two different countries: Indonesia and Korea. The results of 100 Indonesian companies concluded that the length of office and the amount of ownership by the CEO did not make the CEO more powerful (Rizka & Handoko, 2020). As a result, the influence of CEO hubris on financial performance did not change (Rizka & Handoko, 2020).…”

“…The results of 100 Indonesian companies concluded that the length of office and the amount of ownership by the CEO did not make the CEO more powerful (Rizka & Handoko, 2020). As a result, the influence of CEO hubris on financial performance did not change (Rizka & Handoko, 2020). While the results of 164 Korean companies concluded that the problems caused by the behavior of CEO hubris would be worse when the CEO was more powerful (Park et al, 2018).…”