Managers are an important part of human resources, and have become the core module of enterprise management. However, the amount of research done on this topic is rather limited and domestic research in this area has just started. We begin by summarizing the three dimensions of managerial ability, namely, concept, measurement and economic consequences, and thus conclude by summarizing existing problems and areas for future research. Firstly, the corresponding research based on the concept of managerial ability consists of two aspects: the first aspect refers to that based on behavioral psychology, people observe, retrieve and process information, and use existing cognitive structure to store information, thereby eventually transforming the internal cognitive into the external representation. Unfortunately, the aim of optimal decision-making could not be achieved when firms engage in the uncertain external environment. At this time, managers need to use the ability to make the right decisions by making a trade-off between risks and benefits. The second aspect means that based on economics, because managerial ability is unable to flow and duplicate and difficult to be replaced, it is embedded in the production process to promote effective operation of the whole company and improve production efficiency. Therefore, managerial ability is a source of enterprise advantages. Secondly, there are two mainstream ways to measure managerial ability, including proxies and DEA method. To infer managerial ability, researchers generally rely on proxies such as reputation, compensation, and past abnormal performance. Researchers have also inferred manager ability by using data envelopment analysis （DEA）. Current main measurement of managerial ability develops based on the two-stage DEA method proposed by Demerjian, et al （2012）. Thirdly, this paper reviews the six aspects of managerial ability research, concentrating on economic consequence issues like tax policy, earnings quality, corporate performance, credit rating, capital structure and production efficiency. In terms of tax policy, managerial ability determines the engagement in tax avoidance by effectively using enterprise resources. In terms of earnings quality, managerial ability is closely associated with earnings quality. In terms of enterprise performance, managerial ability affects the fluctuations in stock prices, and ultimately the economic benefits. In terms of credit rating, managerial quality is an important reference factor of firm credit rating, while managerial ability and quality are inseparable. In terms of capital structure, long-term debt increases enterprise bankruptcy probability; managers reduce the debt ratio to avoid bankruptcy risk, and thereby market underestimate of their ability. In terms of production efficiency, it explains the reason for efficiency differences in the farms. Finally, we also point out open problems and areas for future research. Firstly, the definition of managerial ability shows diversified. The essence of ability may be found in the integration insight. Secondly, we particularly focus on the innovation of measuring managerial ability. Although the measurement method proposed by Demerjian, et al （2012） is accepted in academia, there has not been a suitable method to measure managerial ability in monopolistic, government-oriented and non-profit enterprises. In the future, the proper method should be found to measure managerial ability in China’s state-owned enterprises. Thirdly, there is little research literature concerning factors influencing managerial ability. The study of the influence on ability has been discussed, including managerial personal experience, macro economy and institutional environment, but it should explore factors influencing managerial ability based on political and culture background in China in the future.
Review and Prospects of Foreign Literature on Managerial Ability
Foreign Economics & Management Vol. 40, Issue 07, pp. 155 - 166 (2018) DOI:10.16538/j.cnki.fem.2018.07.012
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Cite this article
Chen Xueqin, Zheng Baohong. Review and Prospects of Foreign Literature on Managerial Ability[J]. Foreign Economics & Management, 2018, 40(7): 155-166.