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Dupes or Incompetents? An Examination of Management's Impact on Firm Distress
Author(s) -
Leverty J. Tyler,
Grace Martin F.
Publication year - 2012
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2011.01443.x
Subject(s) - business , financial distress , set (abstract data type) , metric (unit) , firm offer , panel data , distress , capital call , industrial organization , microeconomics , marketing , economics , econometrics , psychology , computer science , financial system , psychotherapist , programming language , profit (economics) , individual capital , financial capital
This article examines whether managers impact firm performance. We conservatively define managerial ability as the manager's capacity to deploy the firm's resources. We verify the validity of our metric using a manager–firm matched panel data set that allows us to track managers (CEOs) across different firms over time. We find managerial ability is inversely related to the amount of time a firm spends in distress, the likelihood of a firm's failure, and the cost of failure. These results suggest that the managers of failed firms are less skilled than their counterparts. But even within failed firms there is heterogeneity in the talents of managers.