The influence of managerial ability on corporate financialization

Abstract

This study investigates the influence of managerial ability on corporate financialization level. We find that stronger managerial ability leads to more financial asset holdings owing to fewer financing constraints realized through highly capable managers' higher revenue-generating capacity and lower risks in financial asset investments resulting from their higher ability to recognize quality financial products. We further explore the influence of managerial ability on corporate financialization level in the presence of high-quality information disclosure, managers' financial institution work experience, high economic policy uncertainty, and employee stock ownership. We find that high-quality information disclosure and managers' financial institution work experience strengthen the positive correlation between corporate financialization level and managerial ability. However, high economic policy uncertainty and employee stock ownership weaken the positive correlation between corporate financialization level and managerial ability. Our findings suggest that managers who are more capable of generating revenue during operating activities tend to hold more financial assets, whereas adding constraints to corporate financing activities may hinder managers’ ability to address financial asset investment risks, thus reducing corporate financialization level.