Governance and Innovation: The Dual Forces of CEO Power and Knowledge Capital in Emerging Market

Abstract

The study aims to examine the impact of knowledge capital on firm value under the interaction/moderating effect of powerful CEOs. The panel data analysis is adopted using secondary data of 300 non-financial firms listed in Pakistan Stock Exchange over the period of 2013-2023. The study uses Tobin’s Q as dependent variable, while, knowledge capital and CEO’s power are independent variables. The theoretical foundation is based on the core assumption of stewardship theory. To evaluate the assumptions of the model, the regression diagnostics tests such as Multi-co-linearity, Heteroscedasticity and Panel serial correlation tests are launched. The study selects the fixed effect regression model among ordinary leased square and random effect model using series of steps based on its appropriate tests. Employing fixed-effect regression, the results indicate a significant and positive association between knowledge capital (KC) and Tobon’s Q (firm value), supporting the argument that R&D investments enhance firm value. CEO power (CPR) is also observed to significantly influence firm value, revealing the importance of executive authoritative role. Furthermore, the interaction effect of CEOs power reveals a significant moderation, highlighting the strengthening influence of CPR on the positive relationship between knowledge capital and firm value. These findings contribute valuable insights into the imperative link between knowledge capital and CPR in enhancing the firm value.