The Role of Managerial Discretion in the Firm Performance: A Case Study of Public Limited Firms of Pakistan

Abstract

The purpose of this study is to examine the effects of managerial discretion (Firm Size, CEO Duality, and CEO Incentives) on firm performance as measured by ROA and Tobin's Q in non-financial Pakistani firms listed in KSE between 2011 and 2021. The study used the Generalized Method of Movements and Random Effect and Fixed Effect regression models to examine data from 172 firms in order to ascertain the impact of each managerial discretion variables on business performance. The software utilized for this analysis was STATA 12. Information was taken from KSE-listed companies' websites, databases, and annual reports. The study shows that while firm size and Tobin's Q do not significantly correlate, bigger organizations (firm size) have higher return on assets (ROA). Nevertheless, research discloses that CEO duality is not related to firm performance. Though, the research divulges that as the CEO's incentives rise, ROA and Tobin's Q (firm performance) tend to decrease. This research synthesizes and extends important management theories to provide a sophisticated knowledge of the complex dynamics inside managerial discretion (MD), especially in the context of Pakistani non-financial enterprises registered with the KSE. This represents a substantial theoretical contribution. For all the stakeholders involved in the management discretion landscape, this research offers useful insights that include managerial empowerment, well-informed decision-making, regulatory issues, and strategic performance development.