CEO Power and Firm Performance: The Mediating Role of Board Independence

The relationship between CEO power and firm performance remains a contentious issue in corporate governance literature, with mixed empirical findings. While some studies suggest that a powerful CEO enhances strategic decision-making and firm efficiency, others argue that excessive CEO power leads to managerial entrenchment and weaker performance. However, limited attention has been given to the mediating role of board independence in this relationship. This study examines how board independence mediates the effect of CEO power on firm performance. Using a sample of publicly traded firms, the study employs a random effects regression model to analyze panel data over ten years. CEO power is measured through a composite index, incorporating CEO tenure, ownership, and gender structure, while board independence is assessed based on the proportion of independent directors. Firm performance is proxied by return on assets (ROA). The findings reveal that CEO power has a positive effect on firm performance, however, board independence partially mediates this relationship, strengthening the impact of CEO power on performance. This suggests that an independent board serves as an effective governance mechanism to balance CEO influence and enhance firm outcomes. This study contributes to corporate governance literature by integrating CEO power and board independence within a mediation framework, offering empirical evidence from an emerging market context. The findings provide practical implications for regulators, investors, and policymakers aiming to strengthen governance structures and improve corporate performance.