Impact of Managerial Ability on Stock Price Synchronicity: An Empirical Study on Saudi Companies

Abstract

Purpose: This study examined the impact of managerial ability on stock price synchronicity in non-financial firms listed on the Saudi Stock Exchange.
Study design/methodology/approach: Managerial ability was measured using the model proposed by Demerjian et al. (2012), while stock price synchronicity was assessed through the logarithmic transformation of the coefficient of determination (R²) derived from the market model regressions. Additional analyses included varying the number of return observations, categorizing managerial ability into high and low groups, and segmenting the study period based on the adoption of IFRS in Saudi Arabia.
Sample and data: The sample comprised 159 non-financial companies listed on the Saudi Stock Exchange between 2008 to 2022, yielding 2,036 firm-year observations.
Results: Higher managerial ability is associated with lower stock price synchronicity among Saudi firms. Additional analyses confirmed the robustness and consistency of this effect across multiple model specifications, with a more pronounced impact following the  adoption of IFRS in Saudi Arabia.
Originality/value: This study is the first to investigate the relationship between managerial ability and stock price synchronicity in the Saudi market. It provides a comprehensive empirical framework and detailed analyses that enhance understanding of this relationship in the context of emerging markets.
Research limitations/implications: The study was limited to non-financial listed companies and relied on weekly return data and the coefficient of determination (R²) from market model regressions as a proxy for synchronicity.