Managerial Ability, Investment Efficiency and Stock Price Crash Risk

Habib, Ahsan; Hasan, Mostafa Monzur

doi:10.2139/ssrn.2517905

Cited by 16 publications

(29 citation statements)

References 52 publications

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“…Managerial Characteristics (Salehi et al, 2020;Aliahmadi et al, 2016) (Adut et al, 2019Huang & Sun, 2017;Siao & Chou, 2015) (Rahman et al, 2020;Salehi et al, 2020;Gan, 2019;Ruhs & Østerås, 2019;Akbari et al, 2018;Khurana et al, 2018;Lee et al, 2018;Nurfauzi & Firmansyah, 2018;Habib, 2017) 129 (…”

Section: Ceo's Managerial Abilitymentioning

confidence: 99%

قیاس تأثیر القدرة الإداریة للمدیرین التنفیذیین على نغمة الإفصاح المحاسبى وسیاسة التوزیعات النقدیة: دلیل تطبیقى من البورصة المصریة

حسين¹

2020

الفکر المحاسبى

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This study aimed to measure the effect of the degree of CEO's managerial ability according to the managerial ability score presented by (Demerjian, et al., 2012), on accounting disclosure tone in financial reporting (which expressed in three different descriptive proxies, 1 st accounting disclosure tone for good news (positive or optimistic tone), 2 nd accounting disclosure tone for bad news (negative or pessimistic tone), and 3 rd accounting disclosure tone for net news), and on cash dividends policy (which measured by three alternative proxies, 1 st the firm's decision to pay cash dividends during the year, 2 nd cash dividends on assets ratio, and 3 rd cash dividends returns), by taking into account 129 non-financial companies' listed in the egyptian stock exchange, over the period of 2014 to 2018. The Binary Logistic Regression Analysis and the Fixed Effects Model (as one of the longitudinal regression models for Panel Data) were adopted to examine the research hypotheses using SPSS (ver.24) and E-Views (ver.10) programs. The research concluded to several findings, most important of which, that the degree of CEO's managerial ability of the companies under study have increased. The study provided statistical evidences of which, having a significant effect of the degree of CEO's managerial ability on accounting disclosure tone in financial reporting, as it was found that there was a positive significant effect of the degree of CEO's managerial ability on accounting disclosure tone for good and net news, and a negative significant effect on accounting disclosure tone for bad news. The study also provided statistical evidences that, a positive significant effect of the degree of CEO's managerial ability on cash dividends on assets ratio, and cash dividends returns, and no significant effect on firm's decision to pay cash dividends during the year.

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Section: Ceo's Managerial Abilitymentioning

confidence: 99%

قیاس تأثیر القدرة الإداریة للمدیرین التنفیذیین على نغمة الإفصاح المحاسبى وسیاسة التوزیعات النقدیة: دلیل تطبیقى من البورصة المصریة

حسين¹

2020

الفکر المحاسبى

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“…A growing body of research examines the relation between manager characteristics and stock price crash risk (Habib and Hasan, 2017; Park and Jung, 2017; Cui et al , 2019; Andreou et al , 2017, etc.). These studies have plausible competing arguments concerning the relation between managerial ability and stock price crash risk but provide mixed evidence.…”

Section: Introductionmentioning

confidence: 99%

“…Furthermore, prior literature indicates that managers affect stock price crash risk via bad news withholding channels such as earnings guidance, earnings management and overinvestment (Hamm et al , 2020; Hutton et al , 2009; Habib and Hasan, 2017). Given the results we obtain for the overconfident managers, we examine whether managerial ability influences managers’ choice of using bad news hoarding channels in affecting stock price crash risk when managers are overconfident.…”

Section: Introductionmentioning

confidence: 99%

“…Given the results we obtain for the overconfident managers, we examine whether managerial ability influences managers’ choice of using bad news hoarding channels in affecting stock price crash risk when managers are overconfident. Such examination is motivated by the fact that managerial ability has been found to be associated with firm-level characteristics, such as earnings quality, management guidance and investment efficiency (Demerjian et al , 2013; Baik et al , 2011; Habib and Hasan, 2017), which are documented bad news hoarding channels/mechanisms. We find that managerial ability seems to exacerbate (attenuate) the managerial bad news withholding via the earnings guidance (earnings management) channel only when managers are overconfident.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Managerial ability and stock price crash risk – the role of managerial overconfidence

Liu

Lei

2021

RAF

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Purpose This paper aims to examine the relation between managerial ability and stock price crash risk, conditional on managerial overconfidence. In addition, conditional on managerial overconfidence, the authors investigate the effect of managerial ability on firms’ choice of bad news hoarding channels, which result in a stock price crash. Design/methodology/approach Using a sample of 24,289 firm-years from companies listed on Compustat and CRSP from 1994 to 2018, the authors conduct panel regression analysis. Findings The authors find that managerial ability is positively associated with stock price crash risk only when managerial overconfidence is high. Furthermore, the authors find that managerial ability seems to exacerbate (attenuate) the bad news withholding by the overconfident managers using the earnings guidance (earnings management) channel. The authors find limited evidence that high-ability managers are likely to withhold bad news through the overinvestment channel and “other channels” when managers are overconfident. Finally, the authors find that the joint effect of managerial overconfidence and managerial ability on firms’ crash risk is more pronounced when there is a material weakness in firms’ internal controls, high investor belief heterogeneity and high information asymmetry. However, this effect appears to dissipate during the recent financial crisis in 2008. Originality/value This research reveals that managerial ability is costly to firms by engendering bad news hoardings and stock price crash risk when managers are overconfident. It also sheds light on how managerial overconfidence and managerial ability affect managers’ choice of bad news withholding channels and stock price crash risk. Finally, the paper is of practical value to the board of directors in selecting the prospective executives.

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“…The uniqueness of MA and its validity as a CEO-specific measurement of ability have been attracting much attention in various fields. Recent studies use MA in the context of management forecasts (Baik et al 2011;Ishida et al 2018), earnings quality (Demerjian et al 2013;Demerjian et al 2017), audit fee (Krishnan and Wang 2015), mergers and acquisitions (Leverty and Qian 2010), corporate investments (Andreou et al 2017;Habib and Hasan 2017), tax avoidance (Koester et al 2017), innovative activities (Chen et al 2015;Cho et al 2016), and credit ratings/bank loans (Bonsall et al 2016;De Franco et al 2017).…”

Section: Introductionmentioning

confidence: 99%

Evaluation of Managerial Ability in Japanese Setting

2018

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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.

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Managerial Ability, Investment Efficiency and Stock Price Crash Risk

Cited by 16 publications

References 52 publications

قیاس تأثیر القدرة الإداریة للمدیرین التنفیذیین على نغمة الإفصاح المحاسبى وسیاسة التوزیعات النقدیة: دلیل تطبیقى من البورصة المصریة

قیاس تأثیر القدرة الإداریة للمدیرین التنفیذیین على نغمة الإفصاح المحاسبى وسیاسة التوزیعات النقدیة: دلیل تطبیقى من البورصة المصریة

Managerial ability and stock price crash risk – the role of managerial overconfidence

Evaluation of Managerial Ability in Japanese Setting

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