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This study examines the effect of managerial ability and compensation on the relationship between business strategy and firm value for small and medium-sized enterprises (SMEs). Managers determine, plan, implement, and maintain a firm’s business strategy. Therefore, the characteristics of a manager are an important factor in the selection and success of a business strategy. We believe that managerial abilities are important factors in determining that success. If the managerial ability is good, the manager is more likely to implement a strategy suitable for the firm, significantly affecting the firm’s value. Managers are also more motivated to work harder if their compensation level is high. Therefore, the manager will make efforts to successfully lead the firm’s business strategy. In small and medium-sized enterprises (SMEs), the role of managers is important for carrying out strategies due to the lack of internal resources and difficulties in external funding. Therefore, we examine whether managerial ability and compensation affect the relationship between business strategy and firm value for SMEs. The analysis period is from 2011 to 2017, and the analysis was based on 1615 (firm/year), due to some of the listed SMEs being non-financial businesses with a December settlement of accounts. As a result of the analysis, managerial compensation and ability demonstrated different effects depending on the type of strategy, in terms of the relationship between business strategy and firm value. We suggest that managerial ability and compensation affect the value of a firm and moderate the relationship between business strategy and firm value.

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Effect of Managerial Compensation and Ability on the Relationship between Business Strategy and Firm Value: For Small and Medium-Sized Enterprises (SMEs)