The concept of managerial discretion in corporate governance – better off without it?

Abstract

Purpose This paper aims to assess the concept of managerial discretion with respect to its theoretical and empirical usefulness for corporate governance research. Design/methodology/approach This paper scrutinises applied theoretical claims, definitions and methods, as well as a number of empirical studies on managerial discretion. Findings To date, no empirical definition of the concept has been presented and no measurement has been developed and tested for reliability and validity that contains all three factors of the managerial discretion concept, as proposed by Hambrick and Finkelstein (1987). Practical implications Research on managerial discretion does not provide owners and directors of boards with any advice on granting top managers a high or low degree of discretion. Originality/value This paper concludes that corporate governance scholarship will improve if it abandons the concept of managerial discretion.