IDEAS home Printed from https://ideas.repec.org/a/kob/tjrevi/dec2018v8p1-22.html
   My bibliography  Save this article

Evaluation of Managerial Ability in the Japanese Setting

Author

Listed:
  • Hsihui Chang

    (Lebow College of Business, Drexel University)

  • Souhei Ishida

    (Graduate School of Humanities and Social Sciences, Saitama University)

  • Takuma Kochiyama

    (Graduate School of Business Administration, Hitotsubashi University)

Abstract

Following Demerjian, Lev, and McVay (2012), we quantify managerial ability using a sample of Japanese listed firms for the period 2005-2015. Consistent with their findings, we find that the estimated managerial ability is strongly correlated with manager fixed effects. Further, we find that the managerial ability is economically and significantly associated with the stock price reactions to CEO turnovers and changes in future return on assets following CEO turnovers. Our results are robust to alternative specifi ations of DEA models and inputs used in the estimation of firm efficiency. We contribute to the literature by generalizing the validity of the managerial ability introduced by Demerjian, Lev, and McVay (2012) to a non-US setting.

Suggested Citation

  • Hsihui Chang & Souhei Ishida & Takuma Kochiyama, 2018. "Evaluation of Managerial Ability in the Japanese Setting," The Japanese Accounting Review, Research Institute for Economics & Business Administration, Kobe University, vol. 8, pages 1-22, December.
    • Handle: RePEc:kob:tjrevi:dec2018:v:8:p:1-22
    as

    Download full text from publisher

    File URL: https://www.rieb.kobe-u.ac.jp/tjar/article/vol8/pdf/8.01.ChangIshidaKochiyama
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. C. Edward Fee, 2003. "Raids, Rewards, and Reputations in the Market for Managerial Talent," The Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1315-1357.
    2. Kaplan, Steven N. & Minton, Bernadette A., 1994. "Appointments of outsiders to Japanese boards: Determinants and implications for managers," Journal of Financial Economics, Elsevier, vol. 36(2), pages 225-258, October.
    3. Acharya, Viral V. & Amihud, Yakov & Litov, Lubomir, 2011. "Creditor rights and corporate risk-taking," Journal of Financial Economics, Elsevier, vol. 102(1), pages 150-166, October.
    4. Joe Peek & Eric S. Rosengren, 2005. "Unnatural Selection: Perverse Incentives and the Misallocation of Credit in Japan," American Economic Review, American Economic Association, vol. 95(4), pages 1144-1166, September.
    5. Habib, Ahsan & Hasan, Mostafa Monzur, 2017. "Managerial ability, investment efficiency and stock price crash risk," Research in International Business and Finance, Elsevier, vol. 42(C), pages 262-274.
    6. Fama, Eugene F & French, Kenneth R, 2000. "Forecasting Profitability and Earnings," The Journal of Business, University of Chicago Press, vol. 73(2), pages 161-175, April.
    7. Bok Baik & David B. Farber & Sam (Sunghan) Lee, 2011. "CEO Ability and Management Earnings Forecasts," Contemporary Accounting Research, John Wiley & Sons, vol. 28(5), pages 1645-1668, December.
    8. Marco Becht & Julian Franks & Jeremy Grant & Hannes F. Wagner, 2017. "Returns to Hedge Fund Activism: An International Study," The Review of Financial Studies, Society for Financial Studies, vol. 30(9), pages 2933-2971.
    9. Kaplan, Steven N, 1994. "Top Executive Rewards and Firm Performance: A Comparison of Japan and the United States," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 510-546, June.
    10. Marianne Bertrand & Antoinette Schoar, 2003. "Managing with Style: The Effect of Managers on Firm Policies," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1169-1208.
    11. Soo Yeon Park & Hoon Jung, 2017. "The Effect of Managerial Ability on Future Stock Price Crash Risk: Evidence from Korea," Sustainability, MDPI, vol. 9(12), pages 1-17, December.
    12. Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February.
    13. Bushman, Robert & Chen, Qi & Engel, Ellen & Smith, Abbie, 2004. "Financial accounting information, organizational complexity and corporate governance systems," Journal of Accounting and Economics, Elsevier, vol. 37(2), pages 167-201, June.
    14. Ball, Ray & Kothari, S. P. & Robin, Ashok, 2000. "Corrigendum to "The effect of international institutional factors on properties of accounting earnings"; [Journal of Accounting and Economics 29 (2000) 1-51]," Journal of Accounting and Economics, Elsevier, vol. 30(2), pages 241-241, October.
    15. Douglas J. Skinner, 2011. "Accounting Research in the Japanese Setting," The Japanese Accounting Review, Research Institute for Economics & Business Administration, Kobe University, vol. 1, pages 135-140, December.
    16. Andreou, Panayiotis C. & Karasamani, Isabella & Louca, Christodoulos & Ehrlich, Daphna, 2017. "The impact of managerial ability on crisis-period corporate investment," Journal of Business Research, Elsevier, vol. 79(C), pages 107-122.
    17. Jennifer Francis & Allen H. Huang & Shivaram Rajgopal & Amy Y. Zang, 2008. "CEO Reputation and Earnings Quality," Contemporary Accounting Research, John Wiley & Sons, vol. 25(1), pages 109-147, March.
    18. Nakano, Makoto & 中野, 誠 & Aoki, Yasuharu, 2016. "What Explains Widening Profitability Dispersion Around The World?," Hitotsubashi Journal of commerce and management, Hitotsubashi University, vol. 50(1), pages 23-46, October.
    19. Denis, David J. & Osobov, Igor, 2008. "Why do firms pay dividends? International evidence on the determinants of dividend policy," Journal of Financial Economics, Elsevier, vol. 89(1), pages 62-82, July.
    20. Peter Demerjian & Baruch Lev & Sarah McVay, 2012. "Quantifying Managerial Ability: A New Measure and Validity Tests," Management Science, INFORMS, vol. 58(7), pages 1229-1248, July.
    21. Hayes, Rachel M. & Schaefer, Scott, 1999. "How much are differences in managerial ability worth?," Journal of Accounting and Economics, Elsevier, vol. 27(2), pages 125-148, April.
    22. Gus Franco & Ole-Kristian Hope & Haihao Lu, 2017. "Managerial ability and bank-loan pricing," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 44(9-10), pages 1315-1337, October.
    23. Ball, Ray & Kothari, S. P. & Robin, Ashok, 2000. "The effect of international institutional factors on properties of accounting earnings," Journal of Accounting and Economics, Elsevier, vol. 29(1), pages 1-51, February.
    24. Shivaram Rajgopal & Terry Shevlin & Valentina Zamora, 2006. "CEOs' Outside Employment Opportunities and the Lack of Relative Performance Evaluation in Compensation Contracts," Journal of Finance, American Finance Association, vol. 61(4), pages 1813-1844, August.
    25. Akinobu Shuto & Takuya Iwasaki, 2013. "The Effect of Institutional Factors on Discontinuities in Earnings Distribution: Public Versus Private Firms in Japan," Discussion Paper Series DP2013-32, Research Institute for Economics & Business Administration, Kobe University, revised Jul 2014.
    26. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
    27. Lev, Baruch & Sougiannis, Theodore, 1996. "The capitalization, amortization, and value-relevance of R&D," Journal of Accounting and Economics, Elsevier, vol. 21(1), pages 107-138, February.
    28. Cho, Chanho & Halford, Joseph T. & Hsu, Scott & Ng, Lilian, 2016. "Do managers matter for corporate innovation?," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 206-229.
    29. Steven N. Kaplan & Bernadette A. Minton, 2012. "How Has CEO Turnover Changed?," International Review of Finance, International Review of Finance Ltd., vol. 12(1), pages 57-87, March.
    30. Chen, Yangyang & Podolski, Edward J. & Veeraraghavan, Madhu, 2015. "Does managerial ability facilitate corporate innovative success?," Journal of Empirical Finance, Elsevier, vol. 34(C), pages 313-326.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Souhei Ishida & Takuma Kochiyama & Akinobu Shuto, 2018. "Are More Able Managers Good Future Tellers? Learning from Japan (Forthcoming in Journal of Accounting and Public Policy)," CARF F-Series CARF-F-435, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Nov 2020.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Souhei Ishida & Takuma Kochiyama & Akinobu Shuto, 2018. "Are More Able Managers Good Future Tellers? Learning from Japan (Forthcoming in Journal of Accounting and Public Policy)," CARF F-Series CARF-F-435, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Nov 2020.
    2. Peter Demerjian & Baruch Lev & Sarah McVay, 2012. "Quantifying Managerial Ability: A New Measure and Validity Tests," Management Science, INFORMS, vol. 58(7), pages 1229-1248, July.
    3. Yuan Yuan & Gaoliang Tian & Louise Yi Lu & Yangxin Yu, 2019. "CEO Ability and Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 157(2), pages 391-411, June.
    4. Ben Abdesslem, Rim & Chkir, Imed & Dabbou, Halim, 2022. "Is managerial ability a moderator? The effect of credit risk and liquidity risk on the likelihood of bank default," International Review of Financial Analysis, Elsevier, vol. 80(C).
    5. Jang, Soomi & Choi, Heeick & Kim, Hyungtae, 2024. "Managerial ability and cost of equity capital," Advances in accounting, Elsevier, vol. 65(C).
    6. James, Hui Liang & Ngo, Thanh & Wang, Hongxia, 2023. "The impact of more able managers on corporate trade credit," Journal of Behavioral and Experimental Finance, Elsevier, vol. 40(C).
    7. Robert Kim, 2023. "Do more able managers provide better non‐GAAP earnings?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(2), pages 1983-2012, June.
    8. Jebran, Khalil & Chen, Shihua, 2022. "Corporate policies and outcomes during the COVID-19 crisis: Does managerial ability matter?," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    9. Cheng, Lingsha & Cheung, Adrian (Waikong), 2021. "Is there a dark side of managerial ability? Evidence from the use of derivatives and firm risk in China," Journal of Contemporary Accounting and Economics, Elsevier, vol. 17(2).
    10. Puspita Ghaniy Anggraini & Mahfud Sholihin, 2023. "What do we know about managerial ability? A systematic literature review," Management Review Quarterly, Springer, vol. 73(1), pages 1-30, February.
    11. Joel Harper & Kristopher J. Kemper & Li Sun, 2019. "Managerial ability and bond rating changes," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 28(5), pages 381-401, December.
    12. Wali Ullah, G M & Luo, Juan & Yawson, Alfred, 2024. "Managerial ability and supply chain power," Journal of Contemporary Accounting and Economics, Elsevier, vol. 20(2).
    13. Nadeem, Muhammad & Zaman, Rashid & Suleman, Tahir & Atawnah, Nader, 2021. "CEO ability, career concerns, firms’ lifecycle and investments in intellectual capital," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 237-251.
    14. Wei‐Kang Wang & Wen‐Min Lu & Irene Wei Kiong Ting & Hui‐Ru Kao, 2020. "Asset‐light strategy, managerial ability, and corporate performance of the Asian telecommunications industry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(8), pages 1568-1579, December.
    15. Doukas, John A. & Zhang, Rongyao, 2020. "Corporate managerial ability, earnings smoothing, and acquisitions," Journal of Corporate Finance, Elsevier, vol. 65(C).
    16. Benz, Andreas & Demerjian, Peter R. & Hoang, Daniel & Ruckes, Martin E., 2024. "Picking winners: Managerial ability and capital allocation," Working Paper Series in Economics 163, Karlsruhe Institute of Technology (KIT), Department of Economics and Management.
    17. Samuel B. Bonsall IV & Eric R. Holzman & Brian P. Miller, 2017. "Managerial Ability and Credit Risk Assessment," Management Science, INFORMS, vol. 63(5), pages 1425-1449, May.
    18. Kim, Bumjoon & Koo, Minjae, 2024. "Managerial ability and firm’s tweeting activity," Research in International Business and Finance, Elsevier, vol. 69(C).
    19. García-Meca, Emma & García-Sánchez, Isabel-María, 2018. "Does managerial ability influence the quality of financial reporting?," European Management Journal, Elsevier, vol. 36(4), pages 544-557.
    20. Andreou, Panayiotis C. & Karasamani, Isabella & Louca, Christodoulos & Ehrlich, Daphna, 2017. "The impact of managerial ability on crisis-period corporate investment," Journal of Business Research, Elsevier, vol. 79(C), pages 107-122.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kob:tjrevi:dec2018:v:8:p:1-22. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: TJAR Editorial Office (email available below). General contact details of provider: https://edirc.repec.org/data/rikobjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.