Managerial Ability and Risk-taking Behavior of a Company

One of the most important tasks for managers is decision-making. Life goes on today while the shadowing of uncertainty over all affairs has completely changed the decision-making process for various reasons. Companies, during their economic life, also face various factors that are unpredictable, and they are corporate managers who make the necessary final decisions for the company. Managers, like everyone else in the community, have different individual characteristics, talents, desires, attitudes, and value systems that can influence company policies. The present study aims to investigate the effect of managerial ability on companies' risk-taking behavior. In this regard, we analyzed the financial statements of 165 companies listed in Tehran Stock Exchange (TSE) for the period of 1388-1397. We measured managerial ability using the model introduced by Demerging et al. (2012). Also, we measured the risk-taking behavior of companies using two variables: standard deviation of the Return on Assets (ROA), the ratio of capital expenditures to total assets, and financial leverage of the company. Hypothesis testing is carried out through a multiple regression model with panel data. The results indicate that managerial ability has a positive and significant relationship with the ROA and the ratio of capital expenditures to total assets.