Does managerial ability affect corporate financial constraints? Evidence from China

Abstract

We study the effect of managerial ability on financial constraints of Chinese listed companies. Our results indicate a negative relationship between managerial ability and corporate financial constraints. Further analyses show that managerial ability helps alleviate financial constraints probably through lowering information asymmetry, reducing agency conflicts and enhancing corporate profitability. In addition, we find evidence that private firms suffer from more severe financial constraints than state- and foreign-owned firms, and the effect of managerial ability in alleviating financial constraints is more pronounced for private firms. Overall, our findings help understand the role and highlight the importance of managerial ability in alleviating financial constraints.