East Delta University

MBA Program : Summer 2021

Course Title: Financial Decision Making

Course Code: MBA- FDM- 669.1

Article Review:
Submitted by:
Mohammad Shafkat Aziz
ID: 213002906
S. M Towhedatun Nur Amiree
ID: 213003306
Md. Ridwanur Rahman Ragib
ID: 213003406
Rayhan Ahmad Chowdhury
ID: 213001306

Date of Submission: 27/10/2021

Submitted to:
Mohammad Hassan Shakil
PhD in Finance
Taylor’s University, Malaysia
&
MSc in Islamic Finance INCEIF, Malaysia
East Delta University
 Introduction

CEOs are responsible for a company’s success but it has been realized over time that business success
does not necessarily involve integrity and ethical practices and having to play a major role in corporate
decisions and strategies CEOs are under constant scrutiny from investors, competitors, the media and
society. By using a sample of 455 observations related to 249 listed companies from a list published by
the Harvard Business Review of the world’s best-performing CEOs, the authors combined upper echelon
theory with meso theory of management to investigate the relationship between both corporate and
country corruption risk and the performance of CEOs. This article adopted a three-level approach in its
study as the impact of corruption cannot be measured accurately without taking into account macro-
level factors, such as the risk of corruption in a given country, meso level factors, such as the risk of
corruption in a given company, and micro-level variables, such as the personal characteristics and
behaviors of CEOs.

Based on the above-mentioned premises the authors derived two hypotheses which are mentioned
below:

H1. Among worldwide best-performing CEOs, a higher corporate corruption risk negatively affects CEO
performance.

H2. Among worldwide best-performing CEOs, country corruption risk negatively moderates the
relationship between corporate corruption risk and the CEO’s performance.

The article is composed of six sections which are as follows. Section 1 is the introduction. Section 2
provides a context for the research question, presents prior research, and develops the study’s
hypotheses. Section 3 illustrates methodology in terms of data collection, sample building, and the
econometric model adopted. Section 4 discusses results. Section 5 concludes the paper.

Through various tests and analysis, the article is successful in proving the two hypotheses that CEOs are
seemingly not affected by the corruption risk existing in the country in which they operate and that in
countries where the corruptions lower, the higher is the corporate corruption risk, the higher is the CEO
performance.

Strength

 This article follows a combination of UET theory and meso-theory of management.

 The theoretical arguments of this article are also based on meso-theory of management. It
provides the best research method as it follows a multi-level approach including meso level
factors, micro level factors and macro level variables.
 If we analyze the literature review, much work has been done on CEO performance. UET talks
about how CEO characteristics affect strategic decision making in a significant manner. Previous
work also talks about the life of a firm and how organizational culture and leadership are
associated with it very strictly.
 Weakness
Although the article provides significant evidence in showing the relationship between the corruption
risk and CEO performance, it does however base all its analysis on data of the best performing CEOs
leaving behind scope for analysis on the data of the worst performing CEOs which might bring about
certain anomalies in the results obtained.

Moreover, a number of countries such as Austria, Chile, Finland, Italy, Papua Nuova Guinea, Russian
Federation, South Korea, and Taiwan have only one or two observations in the samples. Therefore,
although the best-performing CEOs scores from the HBR between 2013 and 2017 are used to form the
sample, it does not have a time-series for all companies. Thus, providing more of an unbalanced panel
sample.

It was also noted in the sample the best-performing CEOs are all male, with very few exceptions.
Therefore, whether or not CEO gender impacts on its performance, cannot be decided.

Recommendations
 From the example of Statoil CEO Olav Fjell it is clear that, corrupted CEOs may ignore both the
recommendations and warnings of the internal auditors and security department. These two
bodies are crucial to evaluate the regularities of any given agreement of such nature at hand.
Freedom of exercising power by the CEOs while superseding the advice of the regulatory bodies
often cause the downfall of large corporations or irrecoverable damage of the reputation of the
companies. Therefore, in case of red flag by these entities while signing similar agreement
mentioned above, the Board of Directors should also have a say while taking the ultimate
decision besides the CEO of any company.
 The article collects data from “The Best Performing CEOs in the World” reports provided by the
Harvard Business Review. However, it should have evaluated the performance of the worst
performing ones as well. Because, it would have helped to answer the question if corruption at
country level or company level had actually affected their performance or not; resulting in their
underwhelming performance.
 The article highlights CEOs relying on bribery in order to overcome bureaucratic obstacles. As
developing countries are often plagued with administrative corruption, the article should have
included more developing countries. But, there have been only 13 percent observations from
emerging market countries. Therefore, these countries should not have been underrepresented.