THE LINK BETWEEN MANAGERIAL DISCRETION AND FIRMS' GROWTH STRATEGY

Dynamic business environment drives firms towards practicing different growth strategies in order to successfully position themselves on the market. Growth strategies are concerned with increasing the size and viability of the business over time with the final aim of building and sustaining their competitive market position. This paper points out that in order to increase personal compensations; managers sometimes evaluate firms' growth not considering its profitableness. Managers can perform unrelated takeovers in order to increase their own compensations. Mentioned managerial reasons for diversification are based on the existence of certain imperfections in corporate governance, namely the mechanisms by which stockholders control corporations and their managers. If stockholders could assess those takeovers that would increase profits, and those that wouldn't, and focus management only on those takeovers that increase stockholder value, the possibility of acquisitions managed by managers would disappear (Besanko et. al., 2007: 175). Hambrick and Finkelstein (1987) introduced and elaborated the concept of managerial discretion. In prior studies it has been suggested that greater managerial discretion enables managers to shape firms more significantly, and moreover increases the influence of managerial characteristics on organizational outcomes (Finkelstein & Hambrick). Managerial discretion refers to the ability of executives to affect key organizational outcomes (Hambrick & Finkelstein, 1987). From the perspective of agency theory, high managerial discretion allows managers to work for personal benefits rather than for those of shareholders. While contingency theory points out that executive in diversified firms ask for more compensation than that in non-diversified firms as their more complicated environment, executives adopt some strategies such as mergers and acquisitions (M& A) and diversification in order to increase their compensation. Therefore, this paper, based on prior literature, gives the explanation to the relationship between perceived managerial discretion and TMT motives for firms' growth.