Effects of operations executives’ power on shareholder wealth

Abstract

This study investigates the effect of operations executives' power (OEP) within a firm's organizational structure on the firm's shareholder value. In doing so, we employ a multidimensional measure that captures the relative power dynamics within a firm's TMT and is sensitive to shifts in these dynamics, enabling us to more precisely operationalize the power held by operations executives. Further, we link OEP to abnormal stock returns to evaluate the market's perception of operations executives' influence within a firm's TMT, and to idiosyncratic stock returns risk to explore how this influence contributes to the uncertainty in stock returns. In addition, we examine the contingency roles of firm maturity and market turbulence in moderating the OEP–shareholder value relationship. Using a longitudinal dataset of manufacturing firms (SIC 20–39) from 1998 to 2018, our findings reveal that while OEP boosts abnormal stock returns, it negatively impacts idiosyncratic stock returns risk. Additionally, firm maturity reduces the positive (resp., negative) effect of OEP on abnormal stock returns (resp., idiosyncratic stock return risk), whereas market turbulence enhances the positive (resp., negative) effect of OEP on abnormal stock returns (resp., idiosyncratic stock returns risk). These findings contribute to a deeper understanding of the dynamic interplay between operations executives' influence, firm characteristics, and market conditions in driving shareholder value.