Is Management Quality Value Relevant?

Posted: 14 Dec 2011

See all articles by Vineet Agarwal

Vineet Agarwal

Cranfield University - School of Management

Richard Taffler

University of Warwick - Finance Group

Mike Brown

Birmingham City University

Date Written: November/December 2011

Abstract

Using a unique database of management quality ratings over a 17 year period, we find that while good management appears to be associated with lower subsequent market returns, this is entirely consistent with an informationally efficient market. Quality of management is value relevant in that better managed firms have lower cost of equity, more stable earnings, higher profitability that persists over time, and higher market valuations using the Ohlson (1995 and 2001) method. Potentially endogenous relationships are unlikely to be driving our results. While well managed firms are ‘good firms’, contrary to the belief of many market participants their stocks perform no better than those of poorly managed firms.

Keywords: cost of equity, expected returns, management reputation, resource based view, Management Today, efficient market hypothesis

Suggested Citation

Agarwal, Vineet and Taffler, Richard and Brown, Mike, Is Management Quality Value Relevant? (November/December 2011). Journal of Business Finance & Accounting, Vol. 38, Issue 9‐10, pp. 1184-1208, 2011, Available at SSRN: https://ssrn.com/abstract=1972104 or http://dx.doi.org/10.1111/j.1468-5957.2011.02267.x

Vineet Agarwal (Contact Author)

Cranfield University - School of Management ( email )

Bedfordshire, MK43 0AL
United Kingdom
00 44 (0) 1234 754543 (Phone)
00 44 (0) 1234 752554 (Fax)

Richard Taffler

University of Warwick - Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain
+442476524153 (Phone)
+442476523779 (Fax)

Mike Brown

Birmingham City University

School of Social Sciences
City North Campus
Birmingham, West Midlands B42 2SU
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
2
Abstract Views
1,208
PlumX Metrics