International Conference on Economics, Finance & Business, Prague

THE EFFECT OF MANAGERIAL ABILITY ON RISK-TAKING DECISIONS

OMAR AL-BATAINEH

Abstract:

This study investigates the association between managerial ability and risk-taking decisions using a sample of 3460 firm-year observations obtained from the FTSE 350 index over the period from 2006 to 2017. Using the GLS and the two step GMM system (TSGMM) models, we find strong evidence that managerial ability has a positive and significant effect on firms’ risk-taking, supporting the upper echelons theory (UET) and the reputation model. We document similar results for both financial and non-financial firms and show that corporate governance variables play a significant role in this relationship. Our findings have important implications for policymakers, shareholders and prospective investors.

Keywords: Key Words: Risk-taking, managerial ability, corporate governance, GLS, upper echelons theory, UK.