Managerial Ability and Stock Crash Risk in Indonesia: Financial Performance as A Mediator

Managerial ability is a key determinant of firm performance. As an emerging market, the Indonesian capital market presents investors with significant opportunities, though these are accompanied by considerable risks. This study examines the relationship between managerial ability and stock price crash risk, with financial performance as a mediating variable. We utilise a sample of firms listed on the Indonesia Stock Exchange from 2013 to 2023, specifically those included in the LQ45 index, comprising a final dataset of 810 firm-year observations. Our findings indicate varied outcomes when considering the characteristics of firms in Indonesia. One important finding is that the total effect of the relationship between managerial ability and stock price crash risk, mediated by financial performance, is more potent in non-family firms than in family firms. These findings provide investors with a deeper understanding of the characteristics of the Indonesian capital market. While the market offers considerable opportunities, it also presents potential risks for investors.