A Comparative Approach of the Effect of CEO Power on Stock Price Changes in Strategic and Non-Strategic Industries of the Tehran Stock Exchange

Document Type : Research Paper

Authors

1 Assistant Professor of Accounting, Faculty of Management and Economics, Shahid Bahonar University of Kerman, Kerman, Iran.

2 Ph.D. Candidate of Accounting, Faculty of Management and Economics, Shahid Bahonar University of Kerman, Kerman, Iran.

3 M.A. of Accounting, Zanjan Branch, Islamic Azad University, Zanjan, Iran.

Abstract

Objective: The key goal of investors investing in the shares of companies is to obtain profit, which is obtained by identifying the correct price from the stock market. However, sometimes identifying the correct price of companies does not help to get profit for shareholders, regardless of market trends. Markets generally take various trends from reaching the highest price in the price bubble to reaching the bottom. Sometimes in the market, we see that the stock price of several companies suddenly falls below their real price and the shareholders put the stock in the queue for sale without knowing it. By hiding bad news, it causes accumulation there, and when this accumulation reaches its peak, a large amount of negative information is spread in the market and causes an immediate decrease in the stock price, or the risk of the stock price falling. Stock price changes are a crucial topic for all investors, especially those with long-term goals who are sensitive to share prices and fluctuations. These changes provide valuable information for evaluating companies, comparing their performance with others, assessing efficiency, and ultimately influencing investors' decisions. Therefore, this research aims to compare the impact of CEO power on stock price changes in both strategic and non-strategic industries on the Tehran Stock Exchange, focusing on companies listed on the exchange.
Method: The current research is a type of multiple correlation research and on the other hand, it is a type of post-event research. Because it first examines the correlation between more than two variables; Secondly, it uses data and information after an event occurs. The data of this research is based on the figures and real information of the companies admitted to the Tehran Stock Exchange and the financial statements of the companies. In this analysis, the research variables are first calculated and measured through the collected primary data. Then the variables will be summarized and classified through descriptive statistics indicators. Statistical indices are divided into two groups: central indices (mean, median, and mode) and dispersion indices (such as standard deviation, dispersion coefficient, and skewness coefficient). In inferential analysis, the results of hypothesis testing are determined with the help of data collected from a statistical sample and generalized to the entire statistical population. Therefore, inferential analysis includes testing data related to the sample and concluding the statistical population. In other words, in inferential statistics, community parameters are estimated using sample data. The software used for data analysis in this research is Eviews. The information and data needed to conduct the research were also obtained from the information base of the Tehran Stock Exchange and refer to the financial statements, notes, and reports of the companies admitted to the Tehran Stock Exchange. To test the hypotheses of the research, financial information from 120 companies admitted to the Tehran Stock Exchange between 2016 and 2022 was utilized. The companies were categorized into strategic and non-strategic industries. Following the measurement of the research variables, multivariate linear regression analysis, robust regression tests, and regression analysis graphs were employed to test the research hypotheses.
Results: The research results indicate that the CEO's power does not significantly affect stock price changes in strategic industries. The rejection of the hypothesis suggests that the CEO's role as an executive director in capital market companies has no impact on stock price changes. Additionally, the results of the second hypothesis test also demonstrated that the CEO's power does not significantly influence stock price changes in non-strategic industries.
Conclusion: The power of the CEO is one of the factors that can facilitate management transactions in companies. The CEO influences the board of directors as a source of executive power. If the interests of the CEO are not aligned with the interests of the shareholders, then the influence and power of the CEO becomes problematic. On the other hand, CEOs not only have absolute power in making decisions about the company's operations but also have significant and influential power in the company's strategic decisions, so high-level managers, especially CEOs, stand at the top levels of the organizational structure, whose decision-making power has significant effects on operations. Has the company The more years the CEO has been in the management position, the more influence he has on the company's operations, and due to his strategic position, he has more control over corporate governance decisions. Among the reasons for rejecting the research hypotheses, according to the economic and market conditions in Iran, one can look for factors that are effective in the company's strategic decisions and, in other words, limit the CEO's decision-making power. The subject of sudden changes in stock prices has attracted the attention of many academics and professionals in recent years. These changes occur in the form of stock price jumps. Considering the importance that investors attach to their stock returns, the phenomenon of stock price changes that lead to a sharp decrease in returns has been the focus of researchers.

Keywords

References

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History

  • Receive Date: 08 July 2024
  • Revise Date: 28 July 2024
  • Accept Date: 03 August 2024

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