Opportunity for whom: economic policy uncertainty, managerial ability and firm value

ABSTRACT

Different from the overwhelming evidence in support of the negative effect of economic policy uncertainty on firm value, our findings show that economic policy uncertainty has positive impact on firm value in firms with high managerial ability using the firm-level data from China over the time period 2003 to 2020. Moreover, our mechanism analyses reveal that firms with high managerial ability differ from those with low managerial ability by conducting more acquisitions and innovation activities and improving cost efficiency when faced with high economic policy uncertainty.

KEYWORDS:

• Managerial ability
• economic policy uncertainty
• firm value
• investment decision
• cost management

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ Following Demerjian, Lev, and McVay (2012) and Demerjian and Lev (2021), we first use Data Envelopment Analysis (DEA) to estimate the firm efficiency, then run the Tobit regression of firm efficiency on firm characteristics and use the residual of the regression to measure the managerial ability.

² The regression results are not reported here due to space constraints, but are provided upon request.

Additional information

Funding

This work was supported by the National Social Science Funds of China (Project No. 21CJL024).