Dynamics of Managerial Discretion in Transition Economies

DOI 10.14707/ajbr.130013

Yuliya Ponomareva
School of Business & Economics, Linnaeus University


This conceptual paper is focusing on the dynamic nature of managerial discretion within the context of economic transition. The concept of managerial discretion is discussed in two diverse streams of literature. From the perspective of strategic management research, managerial discretion refers to the locus of managerial control, while the corporate governance research emphasizes control over corporation focusing on minimizing the discretionary power of the management team. This research attempts to highlight the complementarity of the two diverging perspectives. The paradox between managerial decision-making freedom and control is analyzed using example of economic transition. It is being argued that the presence of a dynamic institutional change characterizing the early stages of economic transition may assume the presence of higher degree of managerial freedom while the later stages of economic transition require more formalized mechanisms of control thereby limiting the degree of management discretionary power. As the level of environmental uncertainly is gradually decreasing during the process of economic transition the as institutional environment becomes more stable which, in turn, can lead to the establishment and formalization of control mechanisms. The methodological approach utilized in this study is a conceptual analysis of the previous research on managerial discretion applying institutional, corporate governance and strategic management research perspectives. A theoretical model uniting both corporate governance and strategic management perspectives on managerial discretion was developed. The institutional theory was applied to explain the complementarily of the two main perspectives, particularly within the context of institutional transition. Suggested directions for future research include empirical testing of changes in the level of the TMT discretion along the multiple stages of transition process and further development of interaction effects between different levels of the TMT discretion.

Keywords: Managerial discretion; top-management team (TMT); corporate governance; institutions; transition economies



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