Perceived managerial discretion and firm performance: The moderating role of market competition

Despite being widely discussed in the literature, the impact of managerial discretion on firm performance remains inconclusive. In this study it is proposed that market competitiveness plays an important role in determining the influence of perceived managerial discretion on firm performance. In a survey of 169 top managers of Chinese enterprises, it was found that in highly competitive markets, perceived managerial discretion was positively related to firm performance. In contrast, where there is little competition, perceived managerial discretion and firm performance were negatively correlated. These results suggest that companies operating in highly competitive markets should permit managers greater discretion to make strategic choices to react to the dynamics of the environment. Conversely, companies in less competitive markets should limit managerial discretion to prevent managers abusing this power for personal benefits.