Managerial ability and stock price crash risk

CEO ability and sustainability disclosures: The mediating effect of corporate social responsibility performance

“…The effect of managerial ability on CSR has its rationale in the upper echelons theory, according to which differences in CEOs' attributes and skills determine the variety in their companies' strategic decisions and performance (Hambrick & Mason, ). CEOs' managerial ability is associated with a better understanding of their firms' functioning and performance drivers (Cui et al, ; García‐Sánchez & Martínez‐Ferrero, ) and, consequently, a better use of organisational resources (Demerjian, Lev, Lewis, & McVay, ) and a higher capability to assess potential business opportunities and investment projects and deal with uncertainty (Yuan et al, ). Accordingly, managerial ability affects the way CEOs interpret and react to the same environmental stimuli (Tang et al, ) by making them more likely to adopt innovative strategies (Chen, Podolski, & Veeraraghavan, ) and take risks (Yung & Chen, ).…”

“…To the extent that the CEO's ability increases, he or she is more valued by the labour market (Gibbons & Murphy, ). Consequently, CEOs' managerial ability is related with better career prospects and fewer career concerns (Cui et al, ; Yuan et al, ). In this regard, prior research stresses the close link between managerial ability and the CEO's career concerns and the strong influence of the latter on her or his strategic decisions (García‐Sánchez & Martínez‐Ferrero, ).…”

“…In this regard, prior research stresses the close link between managerial ability and the CEO's career concerns and the strong influence of the latter on her or his strategic decisions (García‐Sánchez & Martínez‐Ferrero, ). Indeed, as these concerns rise, CEOs will attempt to demonstrate their managerial ability to the labour market to gain recognition and enhance their reputation (Cui et al, ). Therefore, less capable CEOs—who have more career concerns—will prefer those investment projects that involve lower risks and whose potential gains can be obtained in the short term, at the expense of long‐term investments with uncertain outcomes (García‐Sánchez & Martínez‐Ferrero, ).…”

“…Regarding the influence of managerial ability on the voluntary disclosure of information, due to their greater knowledge about their companies' functioning and performance drivers, able CEOs can better interpret and respond to the pressures from the economic and competitive environment (Chang, Dasgupta, & Hilary, ; Hui & Matsunaga, ). This factor leads to a positive association between CEOs' managerial ability and voluntary disclosure (Cui et al, ).…”

“…Various studies suggest that CEOs' managerial ability is related to better career prospects and fewer career concerns (Cui, Chen, Zhang, & Zhu, ; Rajgopal, Shevlin, & Zamora, ; Yuan et al, ). Under these assumptions, we posit that more able CEOs—who have fewer career concerns—will show a greater orientation towards CSR practices, namely, by promoting those procedures that have greater positive effects on corporate performance (Chatjuthamard, Jiraporn, Tong, & Singh, ; García‐Sánchez & Martínez‐Ferrero, ; Yuan et al, ).…”