Impact of Management Ability on Financing Policy

Abstract

Companies in their economic life face various factors that are unpredictable. Companies’ directors, make the required final decisions. Manager needs to have ability to identify company’s position and certain characteristics to make best decisions based on his/her own knowledge. One of the most important decisions is that relating to company financing. This study examined the effects of management ability on the financing policies of companies. This was followed by analyzing financial statements of 133 companies in the years 2010-2015. To assess the ability of management, the pattern introduced by Demirjian (2012) was used, and to calculate financing policy, the three variables of financial leverage, debt maturity and level of cash holdings were used. The findings showed that management ability has significant positive relationship only with financial leverage that implies managers with high ability of management capacity tend to use financial leverage to make profitable investments and to demonstrate their high potential.

Keywords

• management ability
• financial leverage
• debt maturities
• level of cash holdings