Managerial ability and corporate investment opportunity

Lee, Chien‐Chiang; Wang, Chih Wei; Chiu, Wan-Chien; Tien, Te Sheng

doi:10.1016/j.irfa.2018.02.007

Cited by 102 publications

(120 citation statements)

References 34 publications

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“…Chemmanur et al (2009) found evidence to suggest that the more capable managers are more able to identify projects that have a high NPV, thus increasing more significant investment. Besides, Lee et al (2018) found that higher managerial ability caused more significant investment opportunities. Managerial abilities also have an essential role when firms face a volatile environment.…”

Section: Introductionmentioning

confidence: 99%

The Role of Managerial Ability in Indonesia: Investment Opportunity Sets, Environmental Uncertainty, Tax Avoidance

Laksono

Firmansyah

2020

HSSR

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Purpose of the study: This study aims to obtain empirical evidence of the effect of investment factors that consist of investment opportunity sets and environmental uncertainty on tax avoidance and the role of managerial ability in moderating these effects. Methodology: The analysis was conducted on 49 manufacturing companies listed on the Indonesia Stock Exchange from 2012 to 2018. It was chosen through a purposive sampling method, so 343 observations were obtained. This study engages two-panel data regression models, a model with and without moderation managerial ability. Also, this study employs factor analysis to produce investment opportunity sets that can represent this variable. Main Findings: This study reveals that investment opportunity sets and environmental uncertainty positively affect tax avoidance. Meanwhile, managerial ability failed to moderate the effect of investment opportunity sets and environmental uncertainty on tax avoidance. Implications: The results of the profiling can be used as an early warning, especially for account representatives and tax auditors at the Indonesia Tax Authority, so that potential tax exploration and examination can be more in-depth for firms that fulfill these characteristics. Also, this study provides advice to the Government of Indonesia to provide tax holidays for firms with high IOS who invest in the real sector and tax incentives for firms that are facing an environment with high uncertainty. Novelty: This study deploys managerial ability as a moderating variable between the relationship of investment opportunity sets and environmental uncertainty to tax avoidance. The managerial ability has an important role in firms' IOS and environmental uncertainty faced by the firms because the level of managers will produce differences in the economic outcomes and the effectiveness of the discretion.

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Section: Introductionmentioning

confidence: 99%

The Role of Managerial Ability in Indonesia: Investment Opportunity Sets, Environmental Uncertainty, Tax Avoidance

Laksono

Firmansyah

2020

HSSR

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“…Bertrand and Schoar (2003) provided evidence that managers can influence their organization's behaviour and performance and find that a significant amount of the heterogeneity in investment, financial and organizational practices of firms can be explained by the presence of manager fixed effects. Other research confirms that managers have heterogeneous abilities and that managerial characteristics have an important impact on firms' investment decisions and practices (e.g., Andreou et al, 2017;Barker & Mueller, 2002;Bertrand & Schoar, 2003;Gan, 2019;Habib & Hasan, 2017;Hirshleifer, Low, & Teoh, 2012;Huang-Meier, Lambertides, & Steeley, 2016;Lee, Wang, Chiu, & Tien, 2018;Malmendier & Tate, 2005;Yung & Chen, 2018).…”

Section: The Importance Of Managersmentioning

confidence: 85%

“…Introduction of the managerial ability measure by Demerjian et al (2012) spawned a new literature examining how managerial ability affects various aspects of managers' decision-making. These studies have documented that managerial ability has a distinctive effect on a firm's financial reporting quality and earnings quality (Demerjian et al, 2013;Huang & Sun, 2017;Wang, Chen, Chin, & Zheng, 2017), earnings management activities (Skousen, Sun, & Wu, 2019), accounting and disclosure policies (Abernathy et al, 2018;Baik et al, 2011;Luo & Zhou, 2017;Sun, 2016), information environment (Baik et al, 2018), tax avoidance behaviour (Koester, Shevlin, & Wangerin, 2017), investment practices (Andreou et al, 2017;Gan, 2019;García-Sánchez & García-Meca, 2018;Habib & Hasan, 2017;Lee et al, 2018), risk-taking behaviour (Andreou et al, 2016;Yung & Chen, 2018), innovation activities (Y. Chen, Podolski, & Veeraraghavan, 2015), credit ratings (Bonsall, Holzman, & Miller, 2017;Cornaggia, Krishnan, & Wang, 2017), structure and pricing of debt (Bui, Chen, Hasan, & Lin, 2018;De Franco, Hope, & Lu, 2017;Petkevich & Prevost, 2018), dividend policies (Guan, Li, & Ma, 2018;Jiraporn, Leelalai, & Tong, 2016); audit fees (Gul, Khedmati, Lim, & Navissi, 2018;Li & Luo, 2017); firm performance (Banker, Darrough, Huang, & Plehn-Dujowich, 2013;Cox, 2017;Demerjian et al, 2012;Francis, Hasan, Mani, & Ye, 2016), and corporate social responsibility (CSR) performance …”

Section: Managerial Ability and Investmentmentioning

confidence: 99%

“…Recent studies have also used the managerial ability measure developed by Demerjian et al (2012) to investigate the impact of ability on firms' investment decisions and practices. For instance, studies that examine managerial ability and corporate investment policies document a strong positive relationship between managerial ability and corporate investment efficiency (e.g., Andreou et al, 2017;Gan, 2019;García-Sánchez & García-Meca, 2018;Lee et al, 2018), as indicated by lower levels of under-and overinvestment. These results suggest that higher managerial ability leads to more efficient corporate investment and that having more able managers mitigates the problems of under-and over-investment, which are the two sources of investment inefficiency.…”

Section: Managerial Ability and Investmentmentioning

confidence: 99%

“…Deviations from expected investment decrease as managerial ability increases due to better information search and processing by higher ability managers, but high ability managers see opportunities or potential problems that other managers don't see. Such managers obtain more precise information on investment opportunities, better recognize market trends and industry context, better understand their firms' strategies, products, routines, and operating environment, employ better evaluation techniques, make better judgement, and predict demand changes more accurately (Boeker, 1989;Demerjian et al, 2012;Holcomb, Holmes, & Connelly, 2009;Kor, 2003;Lee et al, 2018;Spreitzer, McCall, & Mahoney, 1997;Trueman, 1986). Therefore, if managers with high ability recognize opportunities that others miss or make better judgement and estimates than others make, their investment actions may deviate more from the expected level of investment that is anticipated by others.…”

Section: Managerial Ability and Investmentmentioning

confidence: 99%

See 2 more Smart Citations

Managerial Ability and Firm Performance: A Labour Management Perspective.

Yu¹

2020

Preprint

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We address the question how high ability managers achieve superior performance outcomes to their peers by examining how labour investment decisions and labour management outcomes differ based on managerial ability. We build on previous research that predicts expected labour investment (net hiring) based on economic factors and demonstrates that deviations from expected labour investment negatively affect future performance. A prediction based on this research is that deviations from expected labour investment decrease with managerial ability, with the associated consequence that performance is better for companies that deviate less from expected labour investment levels. But this linear prediction is limiting because, if high ability managers only match expected labour investment better than other managers, they would not perform much differently from other managers. High ability managers must see opportunities that are not readily apparent to other managers and take actions based on those opportunities. Therefore, we predict a non-linear relation between deviations from labour investment and managerial ability-that, up to a point, deviations from expected labour investment decrease with managerial ability but that deviations increase at high levels of managerial ability. A corresponding prediction is that deviations from expected labour investment that are made by higher ability mangers have a positive impact on future firm performance. We find support for both these predictions, whether deviations are negative or positive, consistent with high ability managers recognizing opportunities differently from other managers and achieving better performance outcomes when they deviate from expected labour investment.

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The effect of managerial ability on corporate social responsibility and firm value in the energy industry

Gong

Yan

2020

Corp Soc Responsibility Env

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We investigate the role of managerial ability in the relationship between corporate social responsibility (CSR) and firm performance in the energy industry, where sustainability issues are of special interest. We first identify a positive association between CSR and firm value, which, however, disappears when considering managerial ability. Only the MA‐associated components of CSR increases energy firms' value. Finally, managers with superior ability can still efficiently implement CSR activities to foster firm value during the financial crisis. Taken together, these results suggest that higher managerial ability is a crucial certification of the benefit of CSR investment, which in turn improves firm value, particularly during unstable periods.

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Managerial ability and corporate investment opportunity

Cited by 102 publications

References 34 publications

The Role of Managerial Ability in Indonesia: Investment Opportunity Sets, Environmental Uncertainty, Tax Avoidance

The Role of Managerial Ability in Indonesia: Investment Opportunity Sets, Environmental Uncertainty, Tax Avoidance

Managerial Ability and Firm Performance: A Labour Management Perspective.

The effect of managerial ability on corporate social responsibility and firm value in the energy industry

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