2008b, Dupes or Incompetents? An Examination of Management’s Impact of Firm Distress

This paper examines whether managers impact firm performance when it is arguably needed most—during times of distress. We conservatively define managerial ability as the manager’s capacity to deploy the firm’s resources. We verify the validity of our metric using a manager-firm matched panel data set which allows us to track managers (CEOs) across different firms over time. Manager fixed effects are highly related to our measure of managerial ability. We then document that the ability of managers inversely influences the amount of time a firm spends in distress, the likelihood of a firm’s failure, and the cost of failure. These results overturn prior findings and suggest that managers of failed firms are less skilled than their counterparts