Does managerial ability remain valuable during economic shocks?

Managerial ability is often viewed as a source of competitive advantage, but its value may diminish when economic conditions change. We examine whether managerial ability remains valuable during monetary policy shocks and whether financial markets recognize this adaptive capacity. Firms led by more able managers experience more favourable stock price reactions to both expansionary and contractionary monetary policy surprises. Exploiting plausibly exogenous CEO turnover, we provide evidence consistent with a causal interpretation. More able managers also facilitate more stable adjustment, with firm growth and capital structure exhibiting lower volatility, thereby avoiding costly fluctuations in investment and financing decisions.