tailieunhanh - Managerial ability and extreme investment behavior

This paper examines whether, why, and how managerial ability is associated with firms’ investment behavior. Specifically, we focus on the effect of managerial ability on extreme investment behavior. We define expansionary (contractionary) investments as investing significantly more (less) than what is expected based on the firm’s sales growth and industry membership. | http Accounting and Finance Research Vol. 8 No. 4 2019 Managerial Ability and Extreme Investment Behavior Hsin-yi Shirley Hsieh1 Xuerong Sharon Huang2 department of Accounting College of Business Tennessee State University Nashville TN 37203 . 2Paul W. Parkison Department of Accounting Miller College of Business Ball State University Muncie IN 47306 . Correspondence Shirley Hsieh Department of Accounting College of Business Tennessee State University 330 10th Ave N Nashville TN 37203 . E-mail hhsieh@ Received August 27 2019 Accepted September 13 2019 Online Published September 16 2019 doi URL https Abstract This paper examines whether why and how managerial ability is associated with firms investment behavior. Specifically we focus on the effect of managerial ability on extreme investment behavior. We define expansionary contractionary investments as investing significantly more less than what is expected based on the firm s sales growth and industry membership. The baseline results reveal that more able managers are less likely to make contractionary investments while they are more likely to make expansionary investments. We further propose and test the strategic investment hypothesis which predicts that more able managers time the product markets and invest aggressively to ensure firms future competitiveness. The evidence is supportive of this hypothesis More able managers are more less likely to make expansionary contractionary investments when the industry 1 becomes more competitive and 2 is at the onset of R D growth. Moreover expansionary investments by more able managers are indeed their strategic investments which lead to superior future abnormal returns. Keywords managerial ability contractionary investments expansionary investments strategic investments product markets Mr. Hock Tan Broadcom s CEO and the chip industry s most visible deal maker has been helping .