Higher Managerial Ability Research Articles

Managerial ability, digital transformation and innovation efficiency: empirical evidence from Chinese manufacturing listed companies

Purpose This study aims to examine the relationship between managerial ability and innovation efficiency, the mediating effect of digital transformation and the moderating effect of internal control. Design/methodology/approach This study collected A-share manufacturing listed companies in China from 2008 to 2019 and analyzed the data by means of multiple regression analysis, mediating effect test, moderating effect test and heterogeneity test. Finally, the authors conducted robustness test by remeasuring key variables and adding control variables. Findings The empirical results show that the higher managerial ability can improve innovation efficiency, internal control has a positive moderating effect and digital transformation plays a partial mediating effect on the relationship between managerial ability and innovation efficiency. Specially, it is found that the mediating effect of digital transformation is not significant in non-state-owned firms. Practical implications This study suggests that it is necessary to focus on the managerial ability in terms of both cultivation and supervision, to further deepen the digital transformation from the aspects of firms, government and society, especially to support the digital transformation of non-state-owned firms, and to make efforts to improve the corporate governance mechanism and internal control system, so as to better comprehensively realize the improvement of enterprise innovation efficiency. Originality/value Based on the mediating effect analysis of digital transformation and the moderating effect analysis of internal control, this study explores the role of managerial ability on innovation efficiency from a new perspective, expanding the related theoretical framework and research boundaries.

Creating a bridge between ESG and firm's financial performance in Asian emerging markets: catalytic role of managerial ability and institutional quality

PurposeThe study is aimed at examining the impact of ESG on the financial performance (FP) of firms and determining the difference between the impact of ESG on market-oriented financial performance measure (Tobin’s Q) and internal productivity-based financial measure (ROA). The study has also explored the influence of managerial ability and institutional quality as moderating variables on the relation between ESG and the financial performance of firms (both measures of FP: Tobin’s Q and ROA).Design/methodology/approachThe study is quantitative exploratory and uses panel data of 687 publicly listed companies from the year 2013–2023. Data has been acquired from the reputed data providers and OLS regression has been used for panel data analysis with fixed effects.FindingsThe study reaffirms the positive impact of ESG on the financial performance of firms. Each pillar of ESG (environmental, social, and governance) has been found positively related to both measures of financial performance (Tobin’s Q and ROA). The study reveals that managerial ability and institutional quality, acting as supplementary variables, moderate the relationship between ESG and financial performance of firms.Research limitations/implicationsA limited sample comprising data from only 687 firms was used for the analysis. The latest data was not available, therefore, data from 2013 to 2023 was used in the study.Practical implicationsThis study indicates that ESG practices, which are mostly discretionary in Emerging Economies, can be induced through institutional pressures and ensuring higher quality managers. Policymakers in government institutions have to determine the inefficiencies, corrupt practices, and inconsistencies in policies that lower the effectiveness of institutions making them business-unfriendly. At the organizational level, policymakers need to ensure that responsible positions in the organization are held by managers with higher managerial ability. It is also to be ensured by shareholders that managers do not over-invest in ESG-related projects, particularly in organizations with weaker financial status. For managers, it is important to understand the positive benefits associated with ESG, even though they are in the long term.Social implicationsIn Emerging Economies, the official monitoring and regulatory mechanisms are weak, and lack a supportive attitude toward ESG initiatives. Voluntary and proactive firm-level environmental and social initiatives need to be encouraged and rewarded by institutions with public acknowledgment. ESG should be given priority by organizations for improving the quality of services and better social impact of businesses on society.Originality/valueMost of the past research explored the impact of ESG on financial performance in advanced countries or in emerging markets in a single/limited number of countries or industries. Also, past studies investigated the impact of institutional quality and managerial ability on ESG/financial performance in separate models. Conversely, this study has used a multi-country and multi-industry sample for more generalizable findings. Against the backdrop of the institutional environment of Emerging Economies, the study extends Institutional Theory and Upper Echelon Theory to include the role of managerial ability and institutional quality in the relationship between ESG and firms’ financial performance.

Substantive or strategic green innovation? The green policy effect differentiation perspective

This study investigates the differentiated impact of the GCP on GI. Utilizing data from 2007 to 2022 for A-share listed companies in China, indicates that GCP has a more pronounced effect on strategic GI and a relatively less significant effect on substantive GI. Furthermore, this study examines the moderating influence of managerial ability and media attention on the relationship between GCP and GI. The results demonstrate that higher managerial ability or media attention can enhance the positive association between GCP and corporate GI. The mechanism through which GCP affects GI is facilitated by increased investment efficiency and R&D investment.

Unique types and innovation input of family firm CEOs: moderating role of managerial ability in Chinese listed firms

In family firms the role of CEO is highly significant with reference to devise strategic decisions and deciding if it is feasible to invest in innovation input. This study aims to investigate the behaviour analyses of the diverse types of CEOs in family firms towards innovations. This study also analyzes the moderating role of managerial ability in the nexus of CEO types and innovation input. The data are obtained from Chinese A-share listed family firms from Accounting Research and China Stock Exchange in 2012–2020 and analysed using ordinary least squares regression. Tobit and probit regressions are also employed to confirm the results. Results indicate that non-family and family CEOs (with no controlling rights) show identical behaviour concerning their lower intentions to promote innovations in R&D projects than family CEOs with actual controlling rights. In addition, family CEOs with actual controlling rights exert a positive effect on R&D, indicating that they are more willing to invest in innovative projects. Moreover, we observe the significant moderating role of managerial ability in the nexus of CEO types and innovation activities. We find that high managerial ability alters the behaviour of different CEOs. With the moderation of managerial ability, non-family and family CEOs (without actual controlling rights) also show willingness to invest in innovative projects and without managerial ability, CEOs’ willingness to make innovations decline. This study is a pioneer work that investigates the impact of diverse types of CEOs to unlock notable insights regarding the R&D investment behaviour of Chinese family firms with moderating role of managerial ability. This study is useful to all parties involved with the company, including employees, clients, suppliers and customers. The results of this study can also assist board members in selecting and recruiting non-family CEOs or keeping family CEOs (with or without actual controlling rights).

Tax Avoidance: The Role of Managerial Ability and CEO Overconfidence

AbstractPurpose – The purpose of this study is to examine the effect of CEO managerial ability and overconfidence on tax avoidance.Design/methodology/approach – The study was conducted on 120 annual reports of mining sector companies listed on the Indonesian Stock Exchange (IDX) from 2017-2021. Multiple regression was used to test the hypotheses. Tax avoidance was measured by CETR. Managerial ability was measured by firm efficiency and CEO overconfidence is measured by five proxies related to company-specific scores.Findings – This study shows that managerial ability has negative significant effect on tax avoidance. The results reveal that CEO overconfidence has no significant effect on tax avoidance. Managers with high managerial ability will not only increase profits in the short term, but also consider the company's survival in the long term, so; they will reduce tax avoidance activities. Meanwhile, CEO's overconfidence cannot influence the tax management that has been determined by the company.Originality/value– This study attempts to fill the gap in the literature about the influence of management attributes on company decision making in tax avoidance activities. This study indicates that the tax avoidance decision in the company cannot be explained by the executive's psychological characteristics only.Research limitations/Implications – This research is limited to how tax avoidance is influenced by managerial ability and overconfidence in decision making with characteristics related to psychological and internal factors. Future research can add other factors such that can influence decision making in conducting tax avoidance, such as rewards, experience, performance measures and other factors. This study has implications in decision making for policymakers in relation to designing future tax systems to reduce the possibility of companies engaging in tax avoidance practices. Companies are also required to be more transparent in disclosing their performance in generating income to avoid tax avoidance activities.Keywords: Managerial ability, overconfidence, tax avoidance.Article Type: Research Paper.

Managerial ability and analysts’ stock recommendations

This study examines whether analysts consider managerial ability in forming their stock recommendations and, if so, whether it improves the quality of their recommendations. We find that sell-side analysts recommend firms with higher managerial ability more favorably, suggesting that analysts value the implications of managerial ability in assessing firm value. Moreover, the profitability of analyst recommendations increases when the recommendation takes managerial ability into account. Overall, our results suggest that managerial ability is a distinct and important attribute of firms in explaining analysts’ stock recommendations and the value of those recommendations to investors.

Managerial ability and cost of equity capital

This study examines whether more capable managers affect the cost of equity capital. After controlling for standard risk factors and firm characteristics, we find that higher managerial ability is associated with a lower implied cost of equity. Moreover, our results show that the negative association between managerial ability and the cost of equity capital is more pronounced for firms with high information asymmetry among investors, with less institutional ownership, and with high capital intensity. The results are robust to a variety of sensitivity tests, including change specifications, an instrumental variable approach, and alternative measures of managerial ability.

Managerial ability, managerial risk taking and innovation performance

This study examines the effects of managerial risk-taking on corporate innovation performance. Using the sample of China's A-share listed companies from 2015 to 2020, we find strong evidence that managerial risk-taking has a positive effect on corporate innovation performance which relies on the managerial ability. Further, our results show that management personal risk-taking improves their ability and firm level risk-taking improves innovation performance only if it meets with high managerial ability. In this paper we provide new evidence that overly aggressive managerial personal risk tolerance may hinder managerial ability. In addition, we find that managerial ability and risk tolerance of enterprise may work together to promote corporate innovation performance.

The Effect of Managerial Ability on the Timeliness of Financial Reporting: The Role of Audit Firm and Company Size

Effective decision-making relies on access to timely and accurate information, which is widely regarded as a valuable asset in the capital market. Accounting information is no exception, and it is critical for managers to provide such information promptly to advance their firms' economic activities. This study investigates the relationship between managers' ability and the timeliness of financial reporting, testing three research hypotheses through linear regression analysis. The statistical population comprises 115 firms listed on the Tehran Stock Exchange between 2012 and 2021, with 1150 firm-year observations. The delay in the auditor's report serves as a proxy for financial reporting timeliness. Managers' abilities are measured using Demerjian et al.'s model [1]. The findings reveal a significant, positive relationship between managerial ability and the timeliness of financial reporting, indicating that higher managerial ability is associated with lower financial reporting delay. Additionally, the results suggest that the relationship between managerial ability and financial reporting timeliness is moderated by the size of the auditing firm and the firm itself.

Inventory overproduction and managerial ability

AbstractThis study examines a sample of manufacturing firms in order to assess the relationship between overproduction levels with different levels of managerial ability. Using the managerial ability measure developed by Demerjian et al. (2012), this paper shows that firms with high levels of managerial ability have smaller size of overproduction. Furthermore, when overproduction occurs in firms with high levels of managerial ability, it is less likely to reverse in the following year and is more likely to be associated with future sales increases. Overall, the results suggest that high managerial ability firms generally avoid overproduction. High‐ability managers having fewer overproduction reversals suggest that they are less likely to use overproduction to manage earnings; instead, they are more likely to overproduce to build up inventory to expect higher future sales.

Effect of managerial ability toward corporate social responsibility on enterprise default risk

In this study, we explore the effect of managerial ability toward corporate social responsibility (CSR) on enterprise default risk. We observe a negative correlation between CSR and enterprise default risk. Furthermore, we introduce managerial ability and analyze its effects on the default risk of enterprises with regard to implementing the CSR strategy. Studies have revealed that CEOs with higher managerial abilities can effectively capture the advantages of CSR. Our findings are robust to alternative variable measurements. In conclusion, the higher managerial ability is key proof of the effectiveness of CSR, which reduces default risk, especially during economic uncertainty. Our evidence on the effects of managerial ability toward CSR on enterprise risk default has important implications for practitioners and regulators.

Does corporate diversification strategy affect stock price crash risk?

How to strategically mitigate stock price crash risks has become an academic focus in recent years. In this paper, we draw from research in the crash risk and operations management fields to theorize that a firm's operations in multiple industries affect its likelihood of being subject to stock price crash events. This study uses a sample of 67,466 firm-year observations from 2000 to 2020 and finds that diversification substantially reduces crash risk, and such an influence is available under both unrelated and related diversification. We also determine that firms' storage of surplus labor or inventory resources and/or managers' high managerial ability significantly strengthen the effectiveness of diversification on crash risk. We particularly perform two additional tests, namely, a two-stage residual inclusion estimation and a matching combined difference-in-difference analysis, to mitigate endogeneity concerns, and the results hold.

Are voluntary internal control weakness disclosures in initial public offerings associated with managerial ability and subsequent financial reporting quality?

This study examines whether voluntary disclosure of internal control weaknesses (ICWs) in IPO registration statements is associated with managerial ability and subsequent SOX 404 adverse audit opinions. Using a sample of IPO registrants that voluntarily disclosed ICWs in their registration statements, we examine the relationship between ICW disclosure, managerial ability, and subsequent material weaknesses in internal control. We find that IPO registrants with higher managerial ability are more likely to disclose ICWs voluntarily than other registrants. Further, we find evidence that registrants that include voluntary ICW disclosures are more likely to subsequently receive an adverse SOX 404 audit opinion. Additionally, we find evidence that registrants are associated with negative cumulative abnormal returns when an auditor issues an adverse SOX 404 auditor opinion regardless of whether the ICWs were disclosed in the registration statement.

Managerial ability and goodwill impairment: evidence from China

PurposeThis paper aims to examine the effects of managerial ability (MA) on the likelihood and the timeliness of goodwill impairment and explore whether the desirable effect of MA vary with the degree of agency problems.Design/methodology/approachThe authors propose a unified framework to simultaneously examine the effects of MA on the likelihood and the timeliness of goodwill impairment by incorporating a market-based impairment indicator (denoted as BTM), MA and the interaction of BTM with MA to this study’s regression model to account for the likelihood of goodwill impairment. BTM addresses the timeliness of goodwill impairment.FindingsThis study finds that firms with higher MA have lower likelihood of goodwill impairment, and such firms are more likely to recognize goodwill impairment in a timely manner when the underlying value of goodwill is economically impaired. This desirable effect of MA is more pronounced in non-state-owned enterprise (SOEs) and firms without chief executive officer (CEO) duality.Practical implicationsFirms can reduce the losses arising from goodwill impairment by enhancing the ability of their management teams combined with improved corporate governance structure.Originality/valueThis paper provides novel insights on understanding the role of MA in not only reducing the likelihood but also enhancing the timeliness of goodwill impairment. The findings help advance the upper echelons theory by uncovering the heterogenous effects of executives with different levels of ability.

Opportunity for whom: economic policy uncertainty, managerial ability and firm value

ABSTRACT Different from the overwhelming evidence in support of the negative effect of economic policy uncertainty on firm value, our findings show that economic policy uncertainty has positive impact on firm value in firms with high managerial ability using the firm-level data from China over the time period 2003 to 2020. Moreover, our mechanism analyses reveal that firms with high managerial ability differ from those with low managerial ability by conducting more acquisitions and innovation activities and improving cost efficiency when faced with high economic policy uncertainty.

The role of XBRL adoption on the association between managerial ability and corporate tax outcomes: empirical evidence from Indonesia

Purpose This study examines the moderating effect of XBRL mandatory adoption on the association between managerial ability and corporate tax outcomes.Design/methodology/approach This study used a quantitative method with panel data regression models using a sample of listed firms on the Indonesia Stock Exchange from 2010 to 2019.Findings The regression results indicate that XBRL adoption moderates the relationship between managerial ability on tax avoidance and tax risk. Firms with higher managerial ability have relatively greater tax avoidance practices and lower tax risk following XBRL adoption. In this study, the authors document unfavorable and unexpected consequences of XBRL in an emerging country.Research limitations/implications Results are from a sample of firms from one emerging country.Practical implications It becomes important and necessary to develop more and better taxonomies with standardized extensions related to taxes information in the XBRL financial reporting to support the tax administrator’s performance in assessing firms’ tax avoidance and tax risk. The authors underscore the importance of improving taxes tags, including tags from financial statements and the disclosure section. This study may also inform policymakers in other countries that more adequate tax tags are needed to leverage benefit from XBRL adoption in monitoring and assessing corporate tax avoidance and tax risk.Originality/value This study is among the first to test an explanation for the moderating role of XBRL adoption on the association between managerial ability and corporate tax avoidance and tax risk.

Green CEO, managerial ability and environmental performance

PurposeThis research aims to examine the moderating role of green chief executive officer (CEO) in the effect of managerial ability (MA) on environmental performance (ENV).Design/methodology/approachThis research’s sample consists of 197 manufacturing firm-years that are listed on the Indonesian Stock Exchange and the Program Penilaian Peringkat Kinerja Perusahaan Dalam Pengelolaan Lingkungan Hidup (PROPER) participants. Data analysis use industry- and year-effect regression analysis.FindingsThe result shows that MA improves ENV when led by a green CEO. It indicates that a green CEO with higher MA considers environmental responsibilities as a valuable investment to create business competitive advantages and sustainability.Research limitations/implicationsFirst, this research only uses the PROPER participants as the research sample. Second, by nature, MA measurement errors might still exist because it is hard to determine the MA with qualitative factors. Third, this research does not split the environmental responsibilities into a wider spectrum, such as environmental–business, environmental–regulation or environmental–ethical spectrum.Originality/valueThis research provides new evidence that higher MA by green CEO increases ENV in Indonesia. This research also gives a contribution to fill the inconsistent previous findings of MA and ENV.

Firm performance during the Covid-19 crisis: Does managerial ability matter?

Challenged by the Covid-19 crisis, CEOs must rethink about how to operate and exist in the new working environment. We examine if managerial ability of the CEO impacts firm performance during the crisis period. We find a positive and significant association between the CEO managerial ability and both the cumulative raw and abnormal returns. We also find that firms with better CEO managerial ability are more resilient and have higher ROE than their counterparts. We find that the CEOs with higher managerial ability have higher pre-pandemic liquidity which in part explains the better performance amid the Covid-19 crisis.

Proper fund size: a perspective from both investors and fund managers

This paper proposes the notion of the proper size interval for funds and the market redemption return in fund markets. We establish a model to determine the proper size interval that accounts for the interests of both investors and fund managers as well as market constraints. We then propose a method to analyze fund managers’ abilities and fund sizes compared to the market averages. Using data on Chinese equity and hybrid funds for the sample period from 2009 to 2019, we find that there is a negative log-linear relationship between fund net excess return and fund size. Our model shows that both equity and hybrid funds experience the transition from being over-sized to properly- and under-sized. Under-sized and over-sized funds account for about 60% and 30% of the total sample, respectively, while less than 10% of funds have a proper size. Compared with over- or under-sized funds, funds with a proper size can generate higher returns and higher capital inflow. Our empirical results confirm that funds with higher managerial ability indeed outperform those funds with lower managerial ability, regardless of the category of fund size. Overall, our model provides a new method for fund investors, managers, and regulators to classify and evaluate funds.

Determinants of Bankruptcy: Evidence From Financially Distressed Firms

This study examines whether and how external monitoring, managerial ability, and investment decisions impact a financially distressed firm’s probability of future bankruptcy. We find that a financially distressed firm with higher institutional ownership or higher managerial ability is less likely to file for bankruptcy. Additionally, a financially distressed firm’s non-capital expenditure investment is negatively associated with its probability of bankruptcy. This study provides empirical evidence that external monitoring, competence of management, and non-capital expenditure investment should be considered when predicting bankruptcy among financially distressed firms. Our results are of particular interest to managers, lenders, financial institutions, and credit rating agencies.