Does managerial ability affect corporate financial constraints? Evidence from China

Abstract

This paper examines the impact of managerial ability on corporate financial constraints. Based on a large sample of Chinese listed companies during the 2007-2019 period, we find that managerial ability is negatively associated with corporate financial constraints. We also find that managerial ability helps alleviate financial constraints probably through lowering information asymmetry, reducing agency conflicts and enhancing corporate profitability. In addition, we find that private firms suffer from more severe financial constraints than state- and foreign-owned firms, and the effect of managerial ability in alleviating financial constraints is more pronounced for private firms. Overall, our findings help understand the role of managerial ability in alleviating financial constraints.

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