Dupes or Incompetents? An Examination of Management's Impact on Firm Distress

43 Pages Posted: 28 Aug 2010 Last revised: 28 Nov 2011

See all articles by J. Tyler Leverty

J. Tyler Leverty

University of Wisconsin - Madison

Martin F. Grace

Temple University - Fox School of Business & Management

Multiple version iconThere are 2 versions of this paper

Date Written: August 27, 2010

Abstract

This paper examines whether managers impact firm performance when their firms are in distress. We conservatively define managerial ability as the manager’s capacity to deploy the firm’s resources. We verify the validity of our metric using a manager-firm matched panel data set which allows us to track managers (CEOs) across different firms over time. We find managerial ability is inversely related to the amount of time a firm spends in distress, the likelihood of a firm’s failure, and the cost of failure. These results suggest that the managers of failed firms are less skilled than their counterparts. But even within failed firms there is heterogeneity in the talents of managers.

Keywords: Managerial Ability, Manager Fixed Effects, Financial Distress

JEL Classification: M1, D2, G33, G22

Suggested Citation

Leverty, J. Tyler and Grace, Martin F., Dupes or Incompetents? An Examination of Management's Impact on Firm Distress (August 27, 2010). Available at SSRN: https://ssrn.com/abstract=1666884 or http://dx.doi.org/10.2139/ssrn.1666884

J. Tyler Leverty (Contact Author)

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

Martin F. Grace

Temple University - Fox School of Business & Management ( email )

Fox School of Business and Management
1301 Cecil B. Moore Ave.
Philadelphia, PA 19122
United States

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