The Effect of Managerial Ability on Firm Investment Decisions: Evidence from Egyptian Stock Market

Abstract

The research aims to present the idea of managerial ability and how to measure it, as well as to investigate the relationship between the managerial ability of managers and its influence on investment decisions in the company in terms of the availability of opportunities, the effectiveness of choosing investments, and the change in the volume of investments. The three key assumptions that will be tested in this study are as follows: (1) No significant statistical relationship between managerial abilities and the availability of investment opportunities. (2) No statistically significant correlation between the volume of investments and managerial ability. (3) The efficacy of investment decisions does not exhibit a statistically significant correlation with managerial ability. Both inductive and deductive methods are used in this study. The statistical analysis was carried out between 2013 and 2022 using annual financial statement data from the sample companies, which included 24 companies from the EGX 30 index of the Egyptian Stock Exchange. Data envelope analysis and Tobit regression were employed to estimate the three research models and test the hypotheses because the dependent variable had a range of values from 0 to 1. The study found that managerial ability has a positive association with investment decision efficacy, investment volume, and investment opportunities.

Keywords: Managerial ability, Demirjian model, Tobit regression, Investment prospects.