Managerial Ability, Capital Investment and Firm Performance : An Exploration of Mechanisms from the Perspective of Managerial Cognitive Ability

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Bibliographic Information

Other Title
  • 経営者能力，設備投資，企業パフォーマンス : 認知能力の視点から

Abstract

This paper examines a series of relationships between managerial ability and capital investment using the managerial ability measure MA Score of Demerjian et al. (2012) and clarifies the mechanisms that occur there. Although various statements have been made in previous studies about the relationship between managerial ability and capital investment, the mechanisms for why such a phenomenon occurs are unclear, and the major problem is that managerial ability itself is not discussed in depth. Thus, this paper focuses on the “managerial cognitive ability” and the fluctuations in capital investment influenced by such managerial ability, and examines the mechanisms by which those managerial capital investment behaviors affect firm performance. As a result of hypothesizing from the perspective of “managerial cognitive ability” and conducting empirical analyses using panel data of Japanese listed firms, we find that empirical results are consistent with the hypotheses that (i) managers with higher abilities tend to increase capital investments, and (ii) capital investments by those more able managers tend to improve firm performance, but that trend weakens in the more distant future performance. The results suggest that the mechanisms that produce those results are related to the characteristics of “confidence”, “precision” and “boundary” in cognitive ability.

Journal

  • 経済科学

    経済科学 71 (1-2), 33-51, 2023-09

    Graduate School of Economics Nagoya University

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