The Dark Side of CEO Ability: CEO General Managerial Skills and Cost of Equity Capital

54 Pages Posted: 12 Jul 2014 Last revised: 15 Oct 2014

See all articles by Dev R. Mishra

Dev R. Mishra

University of Saskatchewan - Edwards School of Business

Date Written: September 1, 2014

Abstract

CEOs with substantial general managerial ability (generalist CEOs) possess a substantial share of organization (human) capital and have different risk-taking incentives than do their counterpart specialist CEOs. Using an index increasing in CEO general managerial skills as a proxy for general managerial ability, we find that investors require higher returns from firms featuring CEOs who have profuse general managerial ability. Furthermore, expected returns are significantly increasing with CEO general managerial ability in firms with high organization capital, that belong to M&A-intensive industries and that have complex operations, high agency problems and high anti-takeover provisions. These findings are consistent with arguments that organization (human) capital has significant expected return implications and that CEOs with higher general managerial skills may lead to higher agency problems, feature different risk-taking incentives and be more costly to retain in times of need.

Keywords: implied cost of equity, CEO generality, organization capital, agency costs

Suggested Citation

Mishra, Dev R., The Dark Side of CEO Ability: CEO General Managerial Skills and Cost of Equity Capital (September 1, 2014). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2464705 or http://dx.doi.org/10.2139/ssrn.2464705

Dev R. Mishra (Contact Author)

University of Saskatchewan - Edwards School of Business ( email )

Edwards School of Business
Saskatoon, Saskatchewan S7N 5A7
Canada
306-966-8457 (Phone)
306-966-2515 (Fax)

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