Managerial ability, compensation incentives, and corporate performance

Abstract

Enterprise managers play a decisive role in management decisions. With the emergence of managerial ability measurement methods, the influence of managerial ability on enterprise development has received wide attention. Taking Chinese A-share listed companies from 2007 to 2019 as samples, this paper uses a fixed-effect model to examine the impact of management abilities on corporate performance and studies the moderating effect of compensation incentives on this impact. It is found that managerial ability has a significant positive correlation with the performance of listed companies, and this positive correlation is more obvious when the management has higher compensation incentives. Further research shows that higher ability management helps improve the performance of firms with low financing constraints but has no significant effect on the performance of firms with high financing constraints. In addition, compared with state-owned enterprises, the managerial ability of non-state-owned enterprises can promote the improvement of enterprise performance. This paper studies the impact of managerial ability on firm performance from the perspective of compensation incentives, enriching the related literature on managerial ability and firm performance.