CEO power, financial performance and arbitrage opportunity: evidence from Chinese capital market

Abstract

This paper takes all of the Chinese listed companies as a sample to study the relationship between CEO power and the firm's financial performance in different size firm groups. This research shows significant evidence that show CEO power is highly related to a firm's Returns of Assets (ROA). These findings suggest that the CEO is one of a firm's main value drivers and corporate governance should take the responsibility not only to protect shareholder interest but also to secure the CEO's prerogative and let him or her have enough power to make strategic decisions. The CEO with enough power can help a firm avoid short-sighted management activities and achieve sustainable development. This research aligns with some related research. CEOs with high power could add motivations to influence the stock price. Regression analyses illustrate that this arbitrage exists in the bear market; this result means CEOs with higher power have more influence when facing market challenges and help investors keep confidence.