New Managerial Ability and Firm Investment Efficiency

The thesis hypothesises and largely finds more able managers positively affect firm investment efficiency consistent with prior findings that more able managers improve firm performance. The thesis extends this unconditional effect by moderating the relationship between managerial ability and firm investment efficiency on the level of managerial ownership and board monitoring in the firm, a condition that is missing in prior studies. The findings suggest increasing either managerial ownership or board monitoring in the firm significantly improves investment efficiency in companies managed by more able executives. In fact, where either managerial ownership or board monitoring reaches the lowest levels in the firm, more able managers no longer improve firm investment efficiency.
   The thesis uses regression analysis to test the hypotheses empirically. It relies on data collected from multiple databases to form a final sample of 58,734 firm-year observations of US listed firms between 1990 and 2014 for the unconditional effect of managerial ability on investment efficiency. Including the managerial ownership and board monitoring moderating variables reduces the sample to 19,317 and 11,314 firm-year observations, respectively. The thesis also performs a number of additional tests including studying individual components of aggregate investment and multiple robustness checks such as propensity score matching, firm-fixed effects and manager-fixed effects to enrich and corroborate the main findings.