Corporate policies and outcomes during the COVID-19 crisis: Does managerial ability matter?

Abstract

The devastating impacts of the COVID-19 pandemic have forced firms to formulate strategies that can help them effectively cope with the crisis. In this study, we investigate whether and how managerial ability affects the corporate policies during the COVID-19 crisis. Specifically, we investigate how managerial ability affects the policies of firms related to investment, financing, cash holdings, and dividend payouts. We also explore whether firm performance is influenced by managerial ability. Using quarterly data of Chinese firms during 2020, results show that firms with higher ability managers reduce their investments, financing, and cash holdings, yet increase their dividend payouts during the COVID-19 crisis. Findings also indicate that firms having more capable managers tend to outperform those having less capable managers. Results of our additional analyses reveal that general ability carries more value than special ability and that managerial ability has varying effects on state-owned and non-state-owned firms. These results contribute to the literature by highlighting managerial ability as a critical determinant of firm performance and policies at times of uncertainty.