Management Practices as a Proxy for Firm Quality

Authors

  • Petar Dobrev Stockton University

DOI:

https://doi.org/10.33423/jabe.v24i6.5731

Keywords:

business, economics, excess returns, firm quality, financial performance, management practices, world management survey

Abstract

This paper uses firm-level data on management practices to proxy for firm quality. To that end, we create portfolios comprised of well-managed and poorly-managed firms with the management practice score (a number between one and five) as our sole selection criteria. We find that: (1) Between 1999 and 2019, the well-managed portfolio consistently outperformed the poorly-managed portfolio with respect to profitability, investment, default risk, financial strength, and market capitalization; (2) In the period from 1999 to 2008, a portfolio that took a long position in stocks of well-managed firms and a short position in stocks of poorly-managed firms earned a monthly three-factor alpha of 0.89% (t=2.16) and a five-factor alpha of 1.14% (t=2.75).

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Published

2022-12-31

How to Cite

Dobrev, P. (2022). Management Practices as a Proxy for Firm Quality. Journal of Applied Business and Economics, 24(6). https://doi.org/10.33423/jabe.v24i6.5731

Issue

Section

Articles