The Effect of the CEO's Power on the Suspension of Operational Activities of Companies

Subject Areas : Ethics and accounting

Zeinab Rezaei ¹ , Ali Tamoradi ²

1 - Assistant Professor, Department of Accounting, Shushtar Branch, Islamic Azad University, Shushtar, Iran
2 - Instructor, Department of Accounting, Payam Noor University, Ramhormoz Center, Ramhormoz, Iran.

Received: 2024-01-25 Accepted : 2024-03-30 Published : 2024-06-26

Keywords: Power of the CEO, Operational activities, Company value, Financial leverage, Return on assets.,

Abstract :

Purpose: Companies are affected over time by external factors such as technological advances and regulatory changes. For effective performance and long-term success, companies update production lines, which may involve a break in company operations. The aim of the present study is to investigate the impact of the CEO's power on the suspension of operational activities of companies listed on the Tehran Stock Exchange.

Method: The present research is applied in terms of purpose and descriptive and correlational in terms of nature. For this purpose, research hypotheses were developed and tested using the information of 150 Iranian stock market companies over a period of 7 years (i.e., from the fiscal year 2014 to 2020).

Findings: In Iran's stock market, the CEO's authority has a significant negative impact on the voluntary suspension of operational activities. Conversely, the CEO's authority has a significant positive impact on the mandatory cessation of operational activities. The CEO leverages their authority to optimize production line capacity utilization and refrains from doing so during periods when they could voluntarily halt production lines for maintenance or upgrades. Consequently, continuous production line operation raises the risk of sudden stoppages due to equipment failures.

Conclusion: Considering that the power of the CEO can impact the optional stoppage of operational activities, it is recommended that corporate governance elements (Board of Directors and Audit Committee) evaluate the CEO's decisions regarding servers and maintenance of production lines to prevent damage or forced stoppage of activities. Implement operational preventive measures. It is also advised to investors and financial analysts that when assessing companies' performance for buying and selling shares, they should consider non-financial criteria such as the CEO's power, in addition to financial performance evaluation criteria. This is because, as per the current research findings, the CEO's power can lead to an increase in forced stoppage of companies' operational activities, which can significantly impact their financial performance and stock prices.

 

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