Premium
Does Managerial Ability Matter in Private Firms? Evidence from Korea
Author(s) -
Hwang LeeSeok,
Jung Taejin,
Yang Seunghee,
Yu Kyunghwa
Publication year - 2018
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12209
Subject(s) - initial public offering , business , discretion , earnings , value (mathematics) , quality (philosophy) , earnings management , enterprise value , accounting , earnings quality , monetary economics , finance , economics , accrual , philosophy , epistemology , machine learning , political science , computer science , law
Using a large dataset of Korean private firms, we examine the value consequences of managerial ability. We document that private firms with more able managers achieve better performance, are less likely to over‐invest, and are more likely to go public. However, we find that these firms experience more severe underperformance following an IPO than firms with less able managers. We provide evidence of more capable managers exhibiting lower earnings quality before an IPO , which is a potential explanation for our findings. The results are consistent with the notion that in the absence of effective monitoring mechanisms, owner‐managers in private firms can use their discretion in an opportunistic way.