Skilled managers and capital financing decisions: navigating Chinese firms through financing constraints and growth opportunities

• Published in: Kybernetes 2024-11, Vol.53 (11), p.4381-4396
• Main Authors: Zahid, R.M. Ammar, Khan, Muhammad Kaleem, Kaleem, Muhammad Shafiq
• Format: Article
• Language: English
• Subjects: Asymmetry; Bankruptcy; Capital structure; Constraints; Corporate growth; Costs; Debt financing; Decision making; Decisions; Earnings management; Equity financing; Financial management; Generalized method of moments; Hypotheses; Impact analysis; Influence; Information management; Management decisions; Managerial skills; Managers; Method of moments; Reputation management; Social responsibility; Stockholders; Value added
• ISSN: 0368-492X; 1758-7883
• DOI: 10.1108/K-02-2023-0268

PurposeExecutive decisions regarding capital financing are an important management aspect, especially during financing constraints and growth opportunities. The current study examines the impact of managerial skills of a company on capital financing decisions. Furthermore, it analyzed this nexus in financing constraints and growth opportunity situations.Design/methodology/approachThe authors use the GMM (generalized method of moments) estimation approach on a dataset of 20,651 firm-year observations of Chinese A-share companies from 2010 to 2019.FindingsThe authors’ findings are compatible with management signaling and reputation enhancement theories, since they show that managerial skill is connected with more substantial debt financing. Managers with high management skills are likely to have more debt financing as they can foresee the economic future of their companies and tactfully convey private information, lowering information inequality and enhancing their reputation. Furthermore, the authors also show that firms with restricted financial resources and growth opportunities make this relationship stronger. Capital structure and managerial skill findings are unaffected by alternative specifications, omitted factors, industry group bias and endogeneity.Originality/valueThis study sheds fresh light on the essential manager personality trait of managing ability and how it influences complicated corporate decision-making, particularly in the tough environment due to financing constraints and competitive growth. The authors argue that high-ability managers are compelled to use debt financing not only to lessen information asymmetry but also to guarantee that the market finds their superior ability. This work contributes significantly to the managerial ability literature and the capital structure literature supporting signaling theory.