CEO Managerial Ability, Corporate Investment Quality, and the Value of Cash.

摘要

This study investigates how CEO managerial ability affects investment quality, investment efficiency, and the value of cash. Specifically, I examine whether higher managerial ability is associated with higher M&A quality, more efficient capital investments, and higher value of cash. Investment decision-making and implementation can signal a CEO's managerial ability (Stein 2003), and shareholders assign more value to the cash of those firms with high ability CEOs. Thus, I predict that more able CEOs conduct higher quality M&A and make more efficient capital investment decisions. I also propose that the value of cash is higher for firms with more able CEOs. Using the methodology developed in Demerjian et al. (2012) to estimate CEO managerial ability, I find that the M&As conducted by more able CEOs are less likely to experience goodwill impairment and divestitures in the post-acquisition period. I also find that managerial ability, to a certain extent, can improve capital investment efficiency when firms have a higher likelihood of over- or under-investment. Furthermore, I provide evidence that cash has higher value if it is managed by more able CEOs. Overall, my findings suggest that while managerial ability plays a limited role in improving M&A quality, it significantly increases capital investment efficiency and the value of cash.