Managerial ability, product market competition, and firm behavior

We examine the relation between managerial ability and firm behavior in the face of product market competition. We find that managerial ability is positively associated with market share growth. When facing competitive threats, high-ability managers invest more in research and development relative to capital expenditures. In addition, managerial ability enhances firm value in the face of competition. Collectively, our results suggest that managerial ability is beneficial to the firm facing competitive threats. Our results remain robust after controlling for endogeneity issues and managerial overconfidence, and using alternative measures of managerial ability.