Firms performance, risk taking and managerial ability

Abstract

PurposeThis research aims to examine the moderating role of managerial ability on the relationship between risk-taking behavior and firms' performance.Design/methodology/approachThis research uses 383 manufacturing firm-years listed on the Indonesian Stock Exchange as the research sample. The hypothesis test uses fixed-effect regression analysis.FindingsThe result shows that risk-taking behavior has a positive effect on firms' performance for higher managerial ability. Managerial ability provides higher knowledge, skill and information to get benefits and mitigate costs of risk-taking behavior to improve firms' performance. The role of managerial ability to make risk-taking behavior increase firms' performance occurs more for high-ability managers, dual CEO, shareholder-CEO and family CEO.Originality/valueThis research contributes to answering the conflicting arguments and filling the previous findings gap between risk-taking behavior and firm performance by considering managerial ability as a factor to create effective risk mitigation.