The purpose of this paper is to investigate the direct and indirect links between CEO behavior and firm value using the mediating role of business ethics.
The authors used linear regressions using panel data from the Thomson Reuters ASSET4 of a sample of 540 banks from 2011 to 2023 to assess the study’s hypotheses.
This study finds that CEO behavior affects value creation. The effect of CEO dominance is found to be negative and significant on firm value. In addition, overconfident CEOs contribute to higher firm value. The results show that business ethics mediates the relationship between CEO behavior and firm value. The results are robust across the sub-samples based on region.
This study provides insights for policymakers and regulators tasked with overseeing CEO monitoring in banks. In fact, when developing a corporate governance system, the influence of behavioral biases must be taken into account.
This study contributes to a growing body of literature on the role of the CEO in the firm’s value creation, despite the lack of theoretical background. This study can be considered as one of the early studies, which examines the mediation effect of business ethics on the relationship between CEO behavior and firm value.
