The Dark Side of CEO-Board Integration: Power Dynamics in Arab Boards and Their Performance Agency Cost Implications
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Abstract
This study examines the moderating impact of a powerful CEO on the relationship between board effectiveness and measured by meetings, size, and independence, and agency cost (proxied by asset turnover ratio) and firm performance (measured by earnings per share (EPS)). Using an unbalanced dataset of 295 firm-year observations from listed companies in nine Arabic countries (2019–2023), Hausman-Taylor estimations address endogeneity concerns. The results show that powerful CEOs are positively associated with firm performance but have no direct impact on agency costs. Board meetings are positively linked to firm performance but not to agency costs, whereas board size and independence show no direct effects. Importantly, a powerful CEO significantly moderates the relationship between board meetings and agency costs, with frequent meetings under powerful CEOs leading to higher agency costs. Firms should consider separating the CEO and board roles and adopt safeguards, such as independent lead directors, strict meeting agendas, and confidential sessions, to strengthen board independence.
Keywords
- Corporate Governance
- Powerful CEO
- CEO Board Membership
- Board Effectiveness
- Board of Directors
- Board Meetings
- Board Size
- Board Independ-ence
- Agency Cost
- Firm Performance
- Arab
- Gulf Cooperation Council GCC.
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