<b>Evaluation of Managerial Ability in the Japanese Setting</b>

Abstract

Following Demerjian, Lev, and McVay (2012), we quantify managerial ability using a sample of Japanese listed firms for the period 2005-2015. Consistent with their findings, we find that the estimated managerial ability is strongly correlated with manager-fixed effects. Further, we find that the managerial ability is economically and significantly associated with the stock price reactions to CEO turnovers and changes in future return on assets following CEO turnovers. Our results are robust to alternative specifications of DEA models and inputs used in the estimation of firm efficiency. We contribute to the literature by generalizing the validity of the managerial ability introduced by Demerjian, Lev, and McVay (2012) to a non-US setting.

Management Forecasting Ability and Predictive Ability of Dividend Changes for Future Earnings

“…The quintile rank by industry and year of MA Score based on Demerjian et al (2012). The MA Score is estimated in line with Chang et al (2018).…”

“…To obtain the Managerial Ability Score (MA Score), we trace the same calculation process as Chang et al (2018), who replicate Demerjian et al’s (2012) methodology using Japanese data and show that the MA Score is also valid in the Japanese setting. Accordingly, for the first stage, we use data envelopment analysis (DEA) and solve the following optimization problem:…”

“… 12. In Table 9, we use firm-year observations for 2005–2018 because we require research and development (R&D) data for the preceding 5 years to estimate the MA Score (Demerjian et al, 2012), and the data on R&D expenses are widely available from 2000 in the Japanese financial reporting environment (Chang et al, 2018). Accordingly, we apply Fama and MacBeth’s (1973) tests with 14 years. …”

Managerial ability and voluntary ESG disclosure and assurance: evidence from Taiwan

“…It differs from the sample of US companies used in the previous literature. The two samples are subject to different accounting standards, which directly affect their presentation of accounting items and the structure of their financial reports (Chang et al , 2018).…”

“…For the above two reasons, directly using Demerjian et al ’s (2012) method without any modification may derive abnormal efficiency values (Banna et al , 2019). To avoid the possibility of mismeasuring managerial ability, this study also considers how this method has been adjusted in related literature for samples in different countries (Li, 2015; Park et al , 2016; Chang et al , 2018; Hwang et al , 2018; Sarwar et al , 2019). The measurement methods for samples from different countries are summarized in Table 2.…”