Managerial Ability and Marginal Value of Cash(Evidence from Tehran Stock Exchange)

Document Type : Research Paper

Authors

1 Faculty member, Faculty of Management and Accounting, Allameh Tabatabaei University, Tehran, Iran

2 Accounting department, Management and accounting faculty, Allameh Tabatabai'i University, Tehran, Iran

Abstract

Efficient and effective use of sources is the sign of sufficient and complete tact in source management. One of sources of managers is cash. Shareholders have concerns about internal sources usage. Capable managers can increase the value of these sources by recognition of opportunities and threats of company. Beside the effect of managers abilities on the marginal value of sources, some factors like corporate governance, free cash flow and financial constraints could be effective.Therefore, the existence of strong corporate governance mechanisms and financial constraints can affect the managerial ability about the marginal value of cash. Based on testing hypotheses, the managerial ability increases the marginal value of the companies cash. Furthermore, the interactive effect of managerial ability on the marginal value of cash in companies with financial constraints and strong corporate governance mechanisms is more intense. Furthermore, the interactive effect of managerial ability on the marginal value of cash in companies with financial constraints and strong corporate governance mechanisms is more intense.
1- Introduction
Efficient and effective use of sources is the sign of sufficient and complete tact in source management. One of sources of managers is cash. Shareholders have concerns about internal sources usage. Capable managers can increase the value of these sources by recognition of opportunities and threats of company. Beside the effect of managers abilities on the marginal value of sources, some factors like corporate governance, free cash flow and financial constraints could be effective.
 
2- Hypotheses
Due to theoretical framework and literature review, we have four hypotheses in this research:

Managerial ability increases the marginal value of cash.
Managerial ability increases the marginal value of free cash flow.
Increased coefficient of marginal value due to managerial ability in companies with strong corporate governance is more than companies with weak corporate governance.
Increased coefficient of marginal value due to managerial ability in companies with financial Constraints is more than companies without financial Constraints.

 
3- Research Method
This research is practical in nature and quasi-experimental. The data is based on stock market transactions and financial statements of listed companies in Tehran Stock Exchange. For measurement of variables and testing hypotheses, Eviews, DEA Frontier and Smart Topsis software have been used. Companies listed in Tehran Stock Exchange constitute the statistical society of this research. 104 companies for the time period 2007-2016 have been selected as research sample.
 
4- Results
Due to the tests, hypotheses 1, 3 and 4 have been accepted and hypothesis 2 has not been accepted.
 
5- Final Results
Cash could be valued more than nominal value by company’s shareholders. One of the reasons that influence this valuation is the ability of managers who have full access on cash. Additionally, the managerial ability can influence the marginal value of free cash flows. Therefore, the existence of strong corporate governance mechanisms and financial constraints can affect the managerial ability about the marginal value of cash. Based on testing hypotheses, the managerial ability increases the marginal value of the companies cash (Hypothesis 1). Furthermore, the interactive effect of managerial ability on the marginal value of cash in companies with financial constraints and strong corporate governance mechanisms is more intense (Hypotheses 3 and 4). However, the results of the research show that the effect of managerial ability on marginal value of free cash flow is not significant (second hypothesis). The results of this study about hypotheses 1, 3 and 4 are compatible with the study of Gan and Park (2017).
 
 
 

Keywords

References

                                                         
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History

  • Receive Date: 25 August 2018
  • Revise Date: 01 June 2019
  • Accept Date: 08 June 2019

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