CEOs' Structural Power, Prestige Power, and Dynamic Target Adjustments

This paper examines how different sources of CEO power affect the incorporation of performance feedback in target adjustments. We theorize that both CEOs' structural and prestige power can bias the target updating process if they use their power to extract rent by bargaining for lower targets. Drawing on sociology literature, we further predict that the signaling motive of CEOs with high prestige power may greatly curb their rent extraction behaviors. Consistent with our hypotheses, we find that CEOs with high structural and high prestige power receive more favorable upward and downward adjustments in their EPS targets. At the same time, prestige power is associated with higher upward target revisions relative to structural power. Interestingly, the two types of power do not have additive effects on target adjustments. We employ three exogenous events that plausibly strengthen CEOs' signaling motives and find that following these events, prestige power elicits CEOs to accept even tougher upward target revisions relative to CEOs with low power. Collectively, our findings extend accounting literature by introducing the distinction between different dimensions of CEO power and by probing how organizational and social factors shape dynamic target updating