2021 Volume 10 Issue 1 Pages 204-209
Against the backdrop of structural changes in industries, companies should increase both short-term and long-term competitiveness to achieve their growth. Top managements need to integrate these two competitive forces by appropriately allocating firm resources and making a series of short-term results to long-term goals. This is why management ability is the essential resource for sustainable firm growth. In this context, this study examined the relationship between management ability scores (MAS) and future financial performances. Companies quarterly publish their financial guidance. The study tests the predicting power of MAS whether their financial guidance fit quarterly results or not. MAS is estimated by data envelopment analysis (DEA) with the panel dataset of quarterly financial reports. Empirical evidence suggests (1) MAS accurately predicts quarterly settlements. (2) Predicting power of MAS is robust when it is applied with the first guidance of financial terms while it is ambiguous with the revised ones. (3) MAS also accurately predicts positive (upward) surprises. A one standard deviation increase in MAS realizes 809 times higher accuracy to predict positive surprises. The findings of this study contribute the theoretical development on the relationship between management capability and financial performance.
