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Managerial ability and firm value: A new perspective

Author

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  • Atawnah, Nader
  • Eshraghi, Arman
  • Baghdadi, Ghasan A.
  • Bhatti, Ishaq

Abstract

Using a sample of U.S. firms over three decades, we examine whether the efficiency with which managers generate revenue has an impact on firm value. We find that managerial ability is positively related to firm value such that one standard deviation increase in ability is associated with a 5.7% increase in firm value relative to the mean level. Importantly, by exploiting exogenous CEO turnover, we establish causality between managerial ability and firm value. This relation is stronger in the presence of corporate governance mechanisms, such as institutional investors and financial analysts. We also document a reduction in value-destroying practices - such as earnings management - in firms with more efficient managers.

Suggested Citation

  • Atawnah, Nader & Eshraghi, Arman & Baghdadi, Ghasan A. & Bhatti, Ishaq, 2024. "Managerial ability and firm value: A new perspective," Research in International Business and Finance, Elsevier, vol. 67(PB).
    • Handle: RePEc:eee:riibaf:v:67:y:2024:i:pb:s0275531923002593
    DOI: 10.1016/j.ribaf.2023.102133
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    Keywords

    Managerial Ability; Firm Value; Corporate Governance; CEO Turnover;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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