Managerial Ability and Corporate Information Environment Quality

Managerial ability goes beyond the corporate economical characteristics, and hence exerts considerable effect on financial reporting transparency and information environment quality. The purpose of this study is to analyze whether managerial ability influences corporate information environment quality.

In this study, the model developed by Damirjan et al. (2012) is employed to measure managerial ability, and the model designed by Fakhari and Rezaei Pitenoei (2017) is also adopted to measure corporate information environment quality. The research hypothesis is built on a sample of 485 firm-year listed on the Tehran Stock Exchange during the years 2013-2017 and then tested using multivariate regression model using panel data.

Following signaling theory, the results reveal that managerial ability improves corporate information environment quality. Also, the results of the sensitivity test indicate that the substitution of an alternative measure for managerial ability and information environment quality does not influence the major results, thereby confirming the robustness of the results.

More able managers have better performance due to their greater awareness of their business, industry, and business environment, and are more likely to be interested in communicating their superior performance through more transparency in corporate financial reporting and information environments.

The findings of this study not only fill the gap in the field, but also help managers, investoes and capital market regulators make informed decisions.