Our research published in Journal of Corporate Finance examines whether talented managers unambiguously enhance firm performance. In doing so, we consider the role of two important factors: Managerial discretion and Monitoring!
Do talented managers perform similarly irrespective of the levels of discretion provided to them?
Our research provides evidence that managerial discretion matters for talented managers in enhancing firm performance! Without discretion, talented managers may not be able to fully utilize their abilities in making decisions. A lack of discretion constrains talented managers in making best decisions.
Why is there a need to monitor discretion provided to talented managers?
We find that monitoring keeps talented managers in check when they are provided with higher discretion! Some talented managers may opportunistically use higher levels of discretion for rent seeking purposes. This can have a counter effect on firm performance.
Our Research
“Collectively, the findings from our study contribute to the managerial ability literature by providing a better understanding of how the interplay between managerial ability, discretion, and monitoring quality affect firm performance. We provide new evidence that more able managers do not unambiguously improve firm performance, which is implied by prior managerial ability literature, but instead more able managers can only improve firm performance when provided with higher levels of discretion in a closely monitored environment.”
Reference
Cheung, K. T. S., Naidu, D., Navissi, F., & Ranjeeni, K. (2017). Valuing talent: Do CEOs' ability and discretion unambiguously increase firm performance. Journal of Corporate Finance, 42, 15-35. DOI: https://doi.org/10.1016/j.jcorpfin.2016.11.006
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