The Effects of CEO Power on Firm Value: Evidence from the Financial Crisis of 2008

Abstract

We examine the impact of Chief Executive Officer (CEO) power on the variability of firm value under an exogenous financial crisis. We apply our analysis to 298 financial service firms and find that financial service firms with more powerful CEOs influence higher firm value under the financial crisis by developing sophisticated measures of CEO power. Our interpretation is that firms with powerful CEOs invest more efficiently, and thus generate greater profitability when firms are exposed to the harsh shock and need sophisticated decision making of CEOs. Finally, powerful CEOs are likely to connect the government for TARP funding under the crisis and increase more positive impact on firm value for TARP firms than non-TARP firms. Our study contribute to the discussion about the importance of powerful CEOs with individual decision-making power in a post-crisis period where policy makers, analysts, and investors are concerned.