Hostname: page-component-78c5997874-g7gxr Total loading time: 0 Render date: 2024-11-12T18:13:58.622Z Has data issue: false hasContentIssue false
  • English
  • Français

CEO outsiderness and firm performance in an emerging economy: The moderating role of managerial discretion

Published online by Cambridge University Press:  20 June 2018

Aylin Ataay
Aylin Ataay*
Affiliation:
Management Department, Galatasaray University, Istanbul, Turkey
*
Corresponding author: aylin.ataay@gmail.com
Get access Rights & Permissions [Opens in a new window]

Abstract

Inconsistent findings from prior research on the performance consequences of new Chief Executive Officer (CEO) origin led us to study the moderating effect of managerial discretion on the link between CEO outsiderness and firms’ post-succession performance. Data from 75 CEO succession events from an emerging economy show that new CEO outsiderness, without managerial discretion context influences, has no direct impact on post-succession performance. Further, our findings emphasise the moderating impacts of managerial discretion, stemming from factors in a company’s external and internal contingencies, which either strengthen or weaken the association between new CEO outsiderness and post-succession firm performance. It is found that market complexity, but not munificence, provides CEOs with more discretion in the Turkish context, thus strengthening the positive associations between CEO origin and firm performance. Firms inertia weakens both managerial discretion level and the association between CEO outsiderness and firm performance. The results show that internal corporate governance also matters. Finally, when a CEO assumes the dual role of both the chairman and the CEO, the link between CEO outsiderness and performance of the firm becomes stronger.

Keywords

CEO successionnew CEO outsidernessmanagerial discretionemerging economy
Type
Research Article
Information
Journal of Management & Organization , Volume 26 , Issue 5 , September 2020 , pp. 798 - 814
Copyright
Copyright © Cambridge University Press and Australian and New Zealand Academy of Management 2018

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Aiken, L. S., & West, S. G. (1991). Multiple regression: Testing and interpreting interactions. Newbury Park, CA: Sage.Google Scholar
Ararat, M., Black, B. S., & Yurtoğlu, B. B. (2017). The effect of corporate governance on firm value and profitability: Time-series evidence from Turkey. Emerging Market Review, 30, 113–132.CrossRefGoogle Scholar
Ararat, M., & Uğur, M. (2003). Corporate governance in Turkey: An overview and some policy recommendations. Corporate Governance: The International Journal of Business in Society, 3(1), 58–75.CrossRefGoogle Scholar
Anderson, R. C., & Reeb, D. M. (2003). Founding family ownership and firm performance: Evidence from the S&P 500. Journal of Finance, 58(3), 1301–1328.CrossRefGoogle Scholar
Ataay, A. (2016). The impact of CEO successor’s origin and succession context on firm performance. Paper presented 16th European Academy of Management, Paris.Google Scholar
Audia, P. G., & Greve, H. R. (2006). Less likely to fail: Low performance, firm size, and factory expansion in the shipbuilding industry. Management Science, 52(1), 83–94.CrossRefGoogle Scholar
Bailey, E. E., & Helfat, C. E. (2003). External management succession, human capital, and firm performance: An integrative analysis. Managerial and Decision Economics, 24(4), 347–369.CrossRefGoogle Scholar
Barron, D. N., West, E., & Hannan, M. T. (1994). A time to grow and a time to die: Growth and mortality of credit unions in New York City, 1914-1990. American Journal of Sociology, 100(2), 381–421.CrossRefGoogle Scholar
Bennedsen, M., Nielsen, K. M., Pérez-González, F., & Wolfenzon, D. (2007). Inside the family firm: The role of families in succession decisions and performance. The Quarterly Journal of Economics, 122(2), 647–691.CrossRefGoogle Scholar
Boeker, W., & Goodstein, J. (1993). Performance and successor choice: The moderating effects of governance and ownership. Academy of Management Journal, 36(1), 172–186.Google Scholar
Buğra, A. (1994). State and business in modern Turkey: A comparative study. New York: Suny Press.Google Scholar
Burgelman, R. A. (2002). Strategy as vector and the inertia of co-evolutionary lock-in. Administrative Science Quarterly, 47(2), 325–357.CrossRefGoogle Scholar
Burgelman, R. A., & Grove, A. S. (2007). Let chaos reign, then rein in chaos-repeatedly: Managing strategic dynamics for corporate longevity. Strategic Management Journal, 28(10), 965–979.CrossRefGoogle Scholar
Cadbury, A. (2002). Corporate governance and chairmanship: A personal view. New York: Oxford University Press.CrossRefGoogle Scholar
Cannella, A. A., & Lubatkin, M. (1993). Succession as a sociopolitical process: Internal impediments to outsider selection. Academy of Management Journal, 36(4), 763–793.Google Scholar
Cao, Q., Maruping, L. M., & Takeuchi, R. (2006). Disentangling the effects of CEO turnover and succession on organizational capabilities: A social network perspective. Organization Science, 17(5), 563–576.CrossRefGoogle Scholar
Chung, C. N., & Luo, X. R. (2013). Leadership succession and firm performance in an emerging economy: Successor origin, relational embeddedness, and legitimacy. Strategic Management Journal, 34(3), 338–357.CrossRefGoogle Scholar
Claessens, S., & Djankov, S. (1999). Enterprise performance and management turnover in the Czech Republic. European Economic Review, 43(4), 1115–1124.CrossRefGoogle Scholar
Claessens, S., Djankov, S., & Lang, L. H. (2000). The separation of ownership and control in East Asian corporations. Journal of Financial Economics, 58(1), 81–112.CrossRefGoogle Scholar
Colpan, A. M. (2010). Business groups in Turkey. In A. M. Colpan, T. Hikino, & J. R. Lincoln (Eds), The Oxford handbook of business groups (pp. 486–525). New York: Oxford University Press.CrossRefGoogle Scholar
Core, J. E., Holthausen, R. W., & Larcker, D. F. (1999). Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics, 51(3), 371–406.CrossRefGoogle Scholar
Crossland, C., & Hambrick, D. C. (2007). How national systems differ in their constraints on corporate executives: A study of CEO effects in three countries. Strategic Management Journal, 28(8), 767–789.CrossRefGoogle Scholar
Dai, G., De Meuse, K. P., & Gaeddert, D. (2011). Onboarding externally hired executives: Avoiding derailment – Accelerating contribution. Journal of Management and Organization, 17(2), 165–178.Google Scholar
Datta, D. K., & Guthrie, J. P. (1994). Executive succession: Organizational antecedents of CEO characteristics. Strategic Management Journal, 15(7), 569–577.CrossRefGoogle Scholar
Demirağ, I., & Serter, M. (2003). Ownership patterns and control in Turkish listed companies. Corporate Governance: An International Review, 11(1), 40–51.CrossRefGoogle Scholar
Demirbağ, M., Tatoğlu, E., & Glaister, K. W. (2009). Equity-based entry modes of emerging country multinationals: Lessons from Turkey. Journal of World Business, 44(4), 445–462.CrossRefGoogle Scholar
Dess, G. G., & Beard, D. W. (1984). Dimensions of organizational task environments. Administrative Science Quarterly, 29(1), 52–73.CrossRefGoogle Scholar
DiMaggio, P., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48(2), 147–160.CrossRefGoogle Scholar
Dominguez-CC, M., & Barrosso-Castro, C. (2017). Managerial change and strategic change: The temporal sequence. Journal of Management and Organization, 23(1), 46–73.CrossRefGoogle Scholar
Favaro, K., Karlsson, P. O., & Neilson, G. L. (2013). Time for new CEOs: The 2012 chief executive study. Strategy&, Booz & Company Report. Available at: https://www.strategyand.pwc.com/reports/time-for-new-ceos.Google Scholar
Filatotchev, I., & Nakajima, C. (2010). Internal and external corporate governance: An interface between an organization and its environment. British Journal of Management, 21(3), 591–606.CrossRefGoogle Scholar
Finkelstein, S., & Boyd, B. K. (1998). How much does the CEO matter? The role of managerial discretion in the setting of CEO compensation. Academy of Management Journal, 41(2), 179–199.Google Scholar
Finkelstein, S., & D’aveni, R. A. (1994). CEO duality as a double-edged sword: How boards of directors balance entrenchment avoidance and unity of command. Academy of Management Journal, 37(5), 1079–1108.Google Scholar
Finkelstein, S., & Hambrick, D. C. (1990). Top-management-team tenure and organizational outcomes: The moderating role of managerial discretion. Administrative Science Quarterly, 35(3), 484–503.CrossRefGoogle Scholar
Finkelstein, S., & Hambrick, D. C. (1996). Strategic leadership: Top executives and their effects on organizations. Minneapolis, St.Paul: West Publishing Company.Google Scholar
Finkelstein, S., Hambrick, D. C., & Cannella, A. A. (2009). Strategic leadership: Theory and research on executives, top management teams, and boards. Oxford: Oxford University Press.Google Scholar
Fondas, N., & Wiersema, M. (1997). Changing of the guard: The influence of CEO socialization on strategic change. Journal of Management Studies, 34(4), 561–584.CrossRefGoogle Scholar
Friedman, S. D., & Olk, P. (1995). Four ways to choose a CEO: Crown heir, horse race, coup d’etat, and comprehensive search. Human Resource Management, 34(1), 141–164.CrossRefGoogle Scholar
Friedman, S. D., & Saul, K. (1991). A leader’s wake: Organization member reactions to CEO succession. Journal of Management, 17(3), 619–642.CrossRefGoogle Scholar
Georgakakis, D., & Ruigrok, W. (2017). CEO succession origin and firm performance: A multilevel study. Journal of Management Studies, 54(1), 58–87.CrossRefGoogle Scholar
Giambatista, R. C., Rowe, W. G., & Riaz, S. (2005). Nothing succeeds like succession: A critical review of leader succession literature since 1994. The Leadership Quarterly, 16(6), 963–991.CrossRefGoogle Scholar
Gökşen, N.S., & Üsdiken, B. (2001). Uniformity and diversity in Business Groups: Effects of scale and time of founding. British Journal of Management, 12(4), 325–340.CrossRefGoogle Scholar
Goyal, V. K., & Park, C. W. (2002). Board leadership structure and CEO turnover. Journal of Corporate Finance, 8(1), 49–66.CrossRefGoogle Scholar
Gugler, K., Mueller, D. C., & Yurtoğlu, B. B. (2008). Insider ownership, ownership concentration and investment performance: An international comparison. Journal of Corporate Finance, 14(5), 688–705.CrossRefGoogle Scholar
Guillén, M. F. (2002). Structural inertia, imitation, and foreign expansion: South Korean firms and business groups in China, 1987–1995. Academy of Management Journal, 45(3), 509–525.Google Scholar
Gündüz, L., & Tatoğlu, E. (2003). A comparison of the financial characteristics of group affiliated and independent firms in Turkey. European Business Review, 15(1), 48–54.CrossRefGoogle Scholar
Haleblian, J., & Finkelstein, S. (1993). Top management team size, CEO dominance, and firm performance: The moderating roles of environmental turbulence and discretion. Academy of Management Journal, 36(4), 844–863.Google Scholar
Hall, G. (1992). Reasons for insolvency amongst small firms—A review and fresh evidence. Small Business Economics, 4(3), 237–250.CrossRefGoogle Scholar
Hambrick, D. C. (2007). Upper echelons theory: An update. Academy of Management Review, 32(2), 334–343.CrossRefGoogle Scholar
Hambrick, D. C., & Abrahamson, E. (1995). Assessing managerial discretion across industries: A multimethod approach. Academy of Management Journal, 38(5), 1427–1441.Google Scholar
Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9(2), 193–206.CrossRefGoogle Scholar
Hambrick, D. C., & Finkelstein, S. (1987). Managerial discretion: A bridge between polar views of organizational outcomes. Research in Organizational Behavior, 9, 369–406.Google Scholar
Hambrick, D. C., & Finkelstein, S. (1990). Top management team tenure and organizational outcomes: The moderating role of managerial discretion. Administrative Science Quarterly, 35(3), 484–503.Google Scholar
Hambrick, D. C., Geletkanycz, M. A., & Fredrickson, J. W. (1993). Top executive commitment to the status quo: Some tests of its determinants. Strategic Management Journal, 14(6), 401–418.CrossRefGoogle Scholar
Hannan, M. T., & Freeman, J. (1977). The population ecology of organizations. American Journal of Sociology, 82(5), 929–964.CrossRefGoogle Scholar
Hannan, M. T., & Freeman, J. (1984). Structural inertia and organizational change. American Sociological Review, 49(2), 149–164.CrossRefGoogle Scholar
Haveman, H. A. (1993). Ghosts of managers past: Managerial succession and organizational mortality. Academy of Management Journal, 36(4), 864–881.Google Scholar
Haveman, H. A., Russo, M. V., & Meyer, A. D. (2001). Organizational environments in flux: The impact of regulatory punctuations on organizational domains, CEO succession, and performance. Organization Science, 12(3), 253–273.CrossRefGoogle Scholar
Herrmann, P., & Datta, D. K. (2002). CEO successor characteristics and the choice of foreign market entry mode: An empirical study. Journal of International Business Studies, 33(3), 551–569.CrossRefGoogle Scholar
Karaevli, A. (2007). Performance consequences of new CEO ‘Outsiderness’: Moderating effects of pre‐and post‐succession contexts. Strategic Management Journal, 28(7), 681–706.CrossRefGoogle Scholar
Karaevli, A., & Zajac, E.J. (2013). When do outsider CEOs generate strategic Change? The enabling role of corporate stability. Journal of Management Studies, 50(7), 1267–1294.Google Scholar
Kato, T., & Long, C. (2006). Executive turnover and firm performance in China. The American Economic Review, 96(2), 363–367.CrossRefGoogle Scholar
Keats, B. W., & Hitt, M. A. (1988). A causal model of linkages among environmental dimensions, macro organizational characteristics, and performance. Academy of Management Journal, 31(3), 570–598.Google Scholar
Kesner, I. F., & Sebora, T. C. (1994). Executive succession: Past, present, and future. Journal of Management, 20(2), 327–372.CrossRefGoogle Scholar
Khanna, T., & Yafeh, Y. (2007). Business groups in emerging markets: Paragons or parasites? Journal of Economic Literature, 45(2), 331–372.CrossRefGoogle Scholar
LaPorta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1999). The quality of government. Journal of Law, Economics, and Organization, 15(1), 222–279.CrossRefGoogle Scholar
Lin, W.T., & Liu, Y. (2012). Successor characteristics, change in the degree of firm internationalization, and firm performance: The moderating role of environmental uncertainty. Journal of Management and Organization, 18(1), 16–35.CrossRefGoogle Scholar
Magnusson, P., & Boggs, D. J. (2006). International experience and CEO selection: An empirical study. Journal of International Management, 12(1), 107–125.CrossRefGoogle Scholar
Menon, T., & Pfeffer, J. (2003). Valuing internal vs. external knowledge: Explaining the preference for outsiders. Management Science, 49(4), 497–513.CrossRefGoogle Scholar
Miller, D., & Le Breton-Miller, I. (2011). Family governance and firm performance: Agency, stewardship, and capabilities. Family Business Review, 19(1), 73–87.CrossRefGoogle Scholar
Mitchell, J. R., Hart, T. A., Valcea, S., & Townsend, D. M. (2009). Becoming the boss: Discretion and post-succession success in family firms. Entrepreneurship Theory and Practice, 33(6), 1201–1218.CrossRefGoogle Scholar
Nilsson, G. O. (2007). Corporate governance in Turkey. European Business Organization Law Review, 8(2), 195–236.CrossRefGoogle Scholar
Oba, B., Tiğrel, E., & Şener, P. (2014). Board structure in listed firms: Evidence from an emerging economy. Corporate Governance: An International Journal of Business in Society, 14(3), 382–394.CrossRefGoogle Scholar
Orbay, H., & Yurtoğlu, B. B. (2006). The impact of corporate governance structures on the corporate investment performance in Turkey. Corporate Governance: An International Review, 14(4), 349–363.CrossRefGoogle Scholar
O’Shannassy, P. (2010). Board and CEO practice in modern strategy making: How is strategy developed, who is the boss and in what circumstances? Journal of Management and Organization, 16(2), 280–298.CrossRefGoogle Scholar
Palmer, T. B., & Wiseman, R. M. (1999). Decoupling risk-taking from income stream uncertainty: A holistic model of risk. Strategic Management Journal, 20(11), 1037–1062.3.0.CO;2-2>CrossRefGoogle Scholar
Peng, M. W., Buck, T., & Filatotchev, I. (2003). Do outside directors and new managers help improve firm performance? An exploratory study in Russian privatization. Journal of World Business, 38(4), 348–360.CrossRefGoogle Scholar
Pfeffer, J., & Salancik, G. R. (1978). The external control of organizations: A resource dependence approach. New York: Harper & Row Publishers.Google Scholar
Sakano, T., & Lewin, A. Y. (1999). Impact of CEO succession in Japanese companies: A coevolutionary perspective. Organization Science, 10(5), 654–671.CrossRefGoogle Scholar
Shen, W., & Cannella, A. A. (2002a). Power dynamics within top management and their impacts on CEO dismissal followed by inside succession. Academy of Management Journal, 45(6), 1195–1206.Google Scholar
Shen, W., & Cannella, A. A. (2002b). Revisiting the performance consequences of CEO succession: The impacts of successor type, post-succession senior executive turnover, and departing CEO tenure. Academy of Management Journal, 45(4), 717–733.Google Scholar
Shen, W., & Cannella, A. A. (2003). Will succession planning increase shareholder wealth? Evidence from investor reactions to relay CEO successions. Strategic Management Journal, 24(2), 191–198.CrossRefGoogle Scholar
Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. The Journal of Finance, 52(2), 737–783.CrossRefGoogle Scholar
Taniman, C. A., & O’Shannassy, T. F. (2015). Exploring the influence of chief executive officer professional development and work context on organisation performance: A multi-theoretic perspective. Journal of Management and Organization, 21(5), 675–694.CrossRefGoogle Scholar
Tatoğlu, E., & Glaister, K. W. (2000). Strategic motives and partner selection criteria in international joint ventures in Turkey: Perspectives of Western firms and Turkish firms. Journal of Global Marketing, 13(3), 53–92.CrossRefGoogle Scholar
Thornton, P. H., & Ocasio, W. (1999). Institutional logics and the historical contingency of power in organizations: Executive succession in the higher education publishing industry, 1958–1990. American Journal of Sociology, 105(3), 801–843.CrossRefGoogle Scholar
Tushman, M. L., & Romanelli, E. (1985). Organizational evolution: Interactions between external and emergent processes and strategic choice. Research in Organizational Behavior, 8, 171–222.Google Scholar
Tushman, M. L., & Rosenkopf, L. (1996). Executive succession, strategic reorientation, and performance growth: A longitudinal study in the US cement industry. Management Science, 42(7), 939–953.CrossRefGoogle Scholar
Uğur, M., & Ararat, M. (2006). Does macroeconomic performance affect corporate governance? Evidence from Turkey. Corporate Governance: An International Review, 14(4), 325–348.CrossRefGoogle Scholar
Üsdiken, B., & Yıldırım-Öktem, Ö. (2008). Kurumsal ortamda değişim ve büyük aile holdingleri bünyesindeki şirketlerin yönetim kurullarında icrada görevli olmayan ve bağımsız üyeler (Changes in the institutional environment and non-executive and independent directors on the boards of firms affiliated to large family business groups). Amme İdaresi Dergisi, 41(1), 43–71.Google Scholar
Vancil, R. F. (1987). Passing the Baton: Managing the process of CEO succession. Boston, MA: Harvard Business School Press.Google Scholar
Virany, B., Tushman, M. L., & Romanelli, E. (1992). Executive succession and organization outcomes in turbulent environments: An organization learning approach. Organization Science, 3(1), 72–91.CrossRefGoogle Scholar
Wang, H., Tsui, A. S., & Xin, K. R. (2011). CEO leadership behaviors, organizational performance, and employees’ attitudes. Leadership Quarterly, 22(1), 92–105.CrossRefGoogle Scholar
Wiseman, R. M., & Bromiley, P. (1996). Toward a model of risk in declining organizations: An empirical examination of risk, performance, and decline. Organization Science, 7(5), 524–543.CrossRefGoogle Scholar
Yamak, S., & Ertuna, B. (2017). A primer on corporate governance: Turkey. New York, NY: Business Expert Press.Google Scholar
Yamak, S., Ertuna, B., & Bolak, M. (2006). Sahiplik dağılımının birleşik liderlik yapısı üzerine etkileri (The impacts of ownership structure on leadership duality). Yönetim Araştırmaları Dergisi, 6(1–2), 85–105.Google Scholar
Yamak, S., & Üsdiken, B. (2006). Economic liberalization and the antecedents of top management teams: evidence from Turkish ‘big’ business. British Journal of Management, 17(3), 177–194.CrossRefGoogle Scholar
Yurtoğlu, B. B. (2000). Ownership, control, and performance of Turkish listed firms. Empirica, 27(2), 193–222.CrossRefGoogle Scholar
Zajac, E. J. (1990). CEO selection, succession, compensation and firm performance: A theoretical integration and empirical analysis. Strategic Management Journal, 11(3), 217–230.CrossRefGoogle Scholar
Zhang, Y., & Rajagopalan, N. (2004). When the known devil is better than an unknown god: An empirical study of the antecedents and consequences of relay CEO successions. Academy of Management Journal, 47(4), 483–500.CrossRefGoogle Scholar
Zhang, Y., & Rajagopalan, N. (2010). Once an outsider, always an outsider? CEO origin, strategic change, and firm performance. Strategic Management Journal, 31(3), 334–346.CrossRefGoogle Scholar