Managerial Ability, Financial Performance and Bankruptcy Risk

Document Type : Research Paper

Authors

1 Professor of Accounting, Shiraz University, Shiraz, Iran.

2 Ph.D. Student of Accounting, Shiraz University, Shiraz, Iran.

Abstract

With regard to managers’ important roles in success of companies, the main purpose of this study is to examine the effects of managerial ability on the bankruptcy risk of the Iranian firms listed in the Tehran Stock Exchange, (TSE), and the mediating role of financial performance in that risk. In this study, the data came from a sample of 103 non-financing companies in the TSE from 2004 to 2015. Managerial ability of the companies was measured by the Demirjian’s model (2012). Moreover, the rate of return on assets was applied as a proxy of financial performance, and Emerging Market Scoring model (Altman's Z˝ score) was used as a measure of bankruptcy risk.
The results showed that managerial ability has negative impact on bankruptcy risk. And, financial performance mediates the effect of managerial ability on bankruptcy risk. In other words, managerial ability reduces the bankruptcy risk through improving financial performance. Therefore, it could be concluded that managerial ability is an important factor in the success of the companies in TSE.

Keywords


امین‌زاده، محمد. (1388). بررسی ارتباط بین کیفیت مدیریت و عملکرد کارکنان (مطالعۀ موردی استانداری کردستان و فرمانداری‌های تابعه) پایان‌نامۀ کارشناسی ارشد، دانشگاه آزاد اسلامی واحد سنندج.
خواجوی، شکرالله؛ فرج‌پور بندری، فرهنگ. (1391). تأثیر ویژگی‌های هیئت مدیره بر الگو‌های پیش‌بینی ورشکستگی آلتمن و اهلسن. پژوهش‌های کاربردی در گزارشگری مالی، 1(1)، 132-107.
خواجوی، شکرالله؛ بایزدی، انور؛ جبارزاده کنگرلویی، سعید. (1391). بررسی تطبیقی کیفیت گزارشگری مالی شرکت‌های درمانده و غیر درمانده مالی پذیرفته شده در بورس اوراق بهادار تهران. پژوهش‌های تجربی حسابداری، 1(3)، 66-51.
کمالی‌منفرد، شیما؛ علی‌احمدی، سعید. (1396). تأثیر توانایی مدیریت بر اجتناب مالیاتی و ارزش شرکت با استفاده از روش تحلیل پوششی داده‌ها. دانش حسابداری، 8(1)، 154-135.
ملاحسینی، علی؛ محمدی، محدثه.( 1389). رابطۀ بین توان مدیران و عملکرد تعاونی‌های مصرف شهر کرمان. تعاون و کشاورزی، 21(1)، 141- 125.
ممتازیان، علیرضا؛ کاظم‌نژاد، مصطفی. (1395). بررسی رابطۀ بین قابلیت‌های مدیریت و عملکرد با استفاده از تحلیل پوششی داده‌ها: مطالعه تجربی شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران. پژوهش‌های تجربی حسابداری، 5(4)، 88-65.
نیکبخت، محمدرضا؛ شریفی، مریم. (1389). پیش‌بینی ورشکستگی مالی شرکت‌های بورس اوراق بهادار تهران با استفاده از شبکه‌های عصبی مصنوعی.  مدیریت صنعتی، 2(4)، 180-163.
 نمازی، محمد؛ قدیریان‌آرانی، محمدحسین. (1393). بررسی رابطۀ سرمایۀ فکری و اجزای آن با خطر ورشکستگی شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران. پژوهش‌های تجربی حسابداری، 3(1)، 141-115.
Acquaah, M., Chi, T. (2007). A longitudinal analysis of the impact of firm resources and industry characteristics on firm-specific profitability. Journal of Management & Governance, 11(3), 179-213.
Altman, E.I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. Journal of Finance, 23(4), 589-609.
Altman, E.I. (2005). An emerging market credit scoring system for corporate bonds. Emerging Markets Review, 6(4), 311-323.
Altman, E., Hotchkiss, E. (2006). Corporate Financial Distress and Bankruptcy: Predict and Avoid Bankruptcy, Analyze and Invest in Distressed Debt, Hoboken, New Jersey, U.S.A. John Wiley & Sons, Inc.
Aminzadeh, M. (2009). Investigation relationship between quality management and staff performance (case study Kurdistan Province). M.A. Thesis, Islamic Azad University, Sanandaj Branch [In Persian].
Andreou, P.C., Ehrlich, D., Louca, C. (2013). Managerial ability and firm performance: Evidence from the global financial crisis. Working Paper, University of Technology, Department of Commerce, Finance and Shipping: Cyprus.
Andreou, P.C., Karasamani, I., Louca, C., Ehrlich, D. (2017). The impact of managerial ability on crisis-period corporate investment. Journal of Business Research, 79, 107-122.
Avramov, D., Chordia, T., Jostova, G., Philipov, A. (2013). Anomalies and financial distress. Journal of Financial Economics, 108(1), 139-159.
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99-120.
Barney, J., Wright, M., Ketchen J.D.J. (2001). The resource-based view of the firm: Ten years after 1991. Journal of Management, 27(6), 625-641.
Baron, R.M., Kenny, D.A. (1986). The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173-1182.
Barr, R.S., Seiford, L.M., Siems, T.F. (1994). Forecasting bank failure: a non-parametric frontier estimation approach. Recherches Économiques de Louvain/Louvain Economic Review, 60(04), 417-429.
Barr, R., Siems, T. (1997). Bank failure prediction using DEA to measure management quality. Interfaces in Computer Science and Operations Research, 7, 341-366.
Beaver, W.H., McNichols, M.F., Rhie, J.W. (2005). Have financial statements become less informative? Evidence from the ability of financial ratios to predict bankruptcy. Review of Accounting Studies, 10(1), 93-122.
Bernanke, B.S. (1981). Bankruptcy, liquidity, and recession. The American Economic Review, 71(2), 155-159.
Bruno, A.V., Leidecker, J.K. (1988). Causes of new venture failure: 1960s vs. 1980s. Business Horizons, 31(6), 51-56.
Bates, T., Nucci, A. (1989). An analysis of small business size and rate of discontinuance. Journal of Small Business Management, 27(4), 1-6.
Campbell, J.Y., Hilscher, J., Szilagyi, J. (2008). In search of distress risk. Journal of Finance, 63(6), 2899-2939.
Chemmanur, T.J., Paeglis, I. (2005). Management quality, certification, and initial public offerings. Journal of Financial Economics, 76(2), 331-368.
Chemmanur, T.J., Paeglis, I., Simonyan, K. (2009). Management quality, financial and investment policies, and asymmetric information. Journal of Financial and Quantitative Analysis, 44(5), 1045-1079.
Daubie, M., Meskens, N. (2002). Business failure prediction: a review and analysis of the literature. In New Trends in Banking Management (pp. 71-86). Physica-Verlag HD.
Demerjian, P., Lev, B., McVay, S. (2012). Quantifying managerial ability: A new measure and validity tests. Management Science, 58(7), 1229-1248.
Demerjian, P.R., Lev, B., Lewis, M.F., McVay, S.E. (2013). Managerial ability and earnings quality. The Accounting Review, 88(2), 463-498.
Gitman, L.J. (1998). Principles of Managerial Finance (Vol. 9). Boston: Addison Wesley.
Goddard, L. (1993). Corporate Intensive Care: Why Business Fail and How to Make Them Succeed, Ohio: York Publishing Co.
Griffin, J.M., Lemmon, M.L. (2002). Book–to–market equity, distress risk, and stock returns. Journal of Finance, 57(5), 2317-2336.
Hitt, M.A., Bierman, L., Shimizu, K., Kochhar, R. (2001). Direct and moderating effects of human capital on strategy and performance in professional service firms: A resource-based perspective. Academy of Management journal, 44(1), 13-28.
Holcomb, T.R., Holmes Jr, R.M., Connelly, B.L. (2009). Making the most of what you have: Managerial ability as a source of resource value creation. Strategic Management Journal, 30(5), 457-485.
Kalay, A., Singhal, R., Tashjian, E. (2007). Is chapter 11 costly? Journal of Financial Economics, 84(3), 772-796.
Kamali-Monfared, S., Ali-Ahmadi, S. (2017). Effects of managerial ability on tax avoidance and market value, using data envelopment analysis method. Journal of Accounting Knowledge, 8(1), 135-154 [In Persian].
Khajavi, S., Farajpoor Bandari, F. (2010). The effect of board characteristics on Altman and Ohlson bankruptcy prediction models. Applied Research in Financial Reporting, 1(1), 107-132 [In Persian].
Khajavi, S., Bayazidi, A., Jabbarzadeh, S. (2011). A comparison investigation of financial reporting quality in financially distressed and non-distressed firms case study: Listed companies in Tehran Stock Exchange. Journal of Empirical Research in Accounting, 1(3), 179-213 [In Persian].
Khunthong, J. (1997). Red flag of financial failure: The case of corporation. Ph.D. Dissertation. The national institute of department administration, Thailand.
Kor, Y.Y. (2003). Experience-based top management team competence and sustained growth. Organization Science, 14(6), 707-719.
Laitinen, E.K., Laitinen, T. (2001). Bankruptcy prediction: Application of the Taylor's expansion in logistic regression. International Review of Financial Analysis, 9(4), 327-349.
Lepak, D.P., Smith, K.G., Taylor, M.S. (2007). Value creation and value capture: A multilevel perspective. Academy of Management Review, 32(1), 180-194.
Lensberg, T., Eilifsen, A., McKee, T.E. (2006). Bankruptcy theory development and classification via genetic programming. European Journal of Operational Research, 169(2), 677-697.
Leverty, J.T., Grace, M.F. (2012). Dupes or incompetents? An examination of management's impact on firm distress. Journal of Risk and Insurance, 79(3), 751-783.
López-Gutiérrez, C., Sanfilippo-Azofra, S., Torre-Olmo, B. (2015). Investment decisions of companies in financial distress. BRQ Business Research Quarterly, 18(3), 174-187.
Li, F., Abeysekera, I., Ma, S. (2011). Earnings management and the effect of earnings quality in relation to stress level and bankruptcy level of Chinese listed firms. Corporate Ownership and Control, 9(1), 366-391.
Mollahosseini, A., Mohammadi, M. (2010). Investigating the Relationship between managers capabilities and performance of consumer cooperatives in Kerman city. Journal of Co-operation and Agriculture, 21(1), 125-141 [In Persian].
Momtazian, A., Kazemnejad, M. (2016). Managerial abilities and performance measures. Journal of Empirical Research in Accounting, 5(4), 115-141 [In Persian].
Namazi, M., Ghadirian-Arani, M.H. (2014). Investigation of the relationship between bankruptcy risk, intellectual capital and its components for the companies listed in Tehran Stock Exchange. Journal of Empirical Research in Accounting, 3(3), 115-141 [In Persian].
Nikbakht, M.R., Sharifi, M. (2010). Predicting corporate bankruptcy using artificial neural networks (ANN) in Tehran Stock Exchange. Journal of Industrial Management, 2(4), 163-180 [In Persian].
Newton, G.W. (1998). Bankruptcy Insolvency Accounting Practice and Procedure, New Jersey: John Wiley & Sons Inc.
Newton, G.W. (2010), Bankruptcy and Insolvency Accounting, Practice and Procedure, Vol. 1, 7th Ed, John Wiley & Sons, Inc., Hoboken, New Jersey.
Peel, M.J., Peel, D.A., Pope, P.F. (1986). Predicting corporate failure—some results for the UK corporate sector. Omega, 14(1), 5-12.
Pranowo, K., Achsani, N.A., Manurung, A.H., Nuryartono, N. (2010). Determinant of corporate financial distress in an emerging market economy: Empirical evidence from the Indonesian stock exchange 2004-2008. International Research Journal of Finance and Economics, 52(1), 80-88.
Pryshchepa, O., Aretz, K., Banerjee, S. (2013). Can investors restrict managerial behavior in distressed firms? Journal of Corporate Finance, 23(12), 222-239.
Sobel, M.E. (1982). Asymptotic confidence intervals for indirect effects in structural equation models. Sociological methodology, 13, 290-312.
Uhrig-Homburg, M. (2005). Cash-flow shortage as an endogenous bankruptcy reason. Journal of Banking & Finance, 29(6), 1509-1534.