The effect of management ability on the relationship between CEO financial knowledge and unsystematic risk

Subject Areas : Corporate Finance

Majid Moradi ¹ , Marjan Ghorbani ² , Vahid Oskou ³

1 - Department of Accounting, Saveh Branch, Islamic Azad University, Saveh, Iran.
2 - Department of Accounting, Naser Khosro Higher Education Institute, Saveh, Iran.
3 - Department of Accounting, Faculty of Humanities & Physiacl Education, University of Gonbad Kavous, Gonbad Kavous, Iran.

Received: 2023-12-03 Accepted : 2024-08-22 Published : 2024-08-22

Keywords: CEO's financial knowledge, Managerial ability, Unsystematic risk,

Abstract :

Objective: This research investigates the impact of managerial ability on the relationship between CEO financial literacy and idiosyncratic risk in the Iranian capital market.

Research Methodology: The research methodology is descriptive-survey and ex post facto in terms of implementation, and applied in terms of purpose. The statistical population comprises all companies listed on the Tehran Stock Exchange from 2013 to 2021. A sample of 114 companies was selected through systematic elimination for hypothesis testing. Data sources are divided into two categories: The first group pertains to literature review, utilizing libraries, domestic and foreign journals, databases, articles, and theses. The second group relates to data collection, sourced from the comprehensive information system of the Tehran Stock Exchange and Securities Organization and the Rahavard Novin financial information software. Data analysis was performed using EViews software.

Findings: The results indicate that CEO financial literacy has a significant negative effect on idiosyncratic risk. However, CEO financial literacy does not impact idiosyncratic risk when considering the moderating effect of managerial ability.

Originality/Scientific Value-Added: Accepting the principle that shareholders, as the true owners of companies, seek income generation and capital appreciation, compels business managers to design strategies that mitigate risk to achieve investors' desired returns. Among potential risks are changes in corporate systems and operational processes. The interplay between managerial ability, as one of the most crucial individual characteristics, and CEO financial literacy can lead to sound decision-making and behavior within the organization, constructively controlling idiosyncratic risk. This ultimately results in high returns that meet shareholder expectations.

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