Matching Firms, Managers, and Incentives
London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
European University Institute
London School of Economics (LSE) - Department of Economics; Centre for Economic Policy Research (CEPR)
Harvard University - Strategy Unit; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)
August 3, 2011
Journal of Labor Economics, Forthcoming
Harvard Business School Strategy Unit Working Paper No. 10-073
We exploit a unique combination of administrative sources and survey data to study the match between firms and managers. The data includes manager characteristics, such as risk aversion and talent; firm characteristics, such as ownership; detailed measures of managerial practices relative to incentives, dismissals and promotions; and measurable outcomes, for the firm and for the manager. A parsimonious model of matching and incentive provision generates an array of implications that can be tested with our data. Our contribution is twofold. We disentangle the role of risk-aversion and talent in determining how firms select and motivate managers. In particular, risk-averse managers are matched with firms that offer low-powered contracts. We also show that empirical findings linking governance, incentives, and performance that are typically observed in isolation, can instead be interpreted within a simple unified matching framework.
Number of Pages in PDF File: 59
Date posted: March 1, 2010 ; Last revised: June 20, 2013
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