Do Local Managers Give Labor an Edge?
Scott E. Yonker
Indiana University Bloomington - Department of Finance
August 8, 2013
Based on the psychological theory of place attachments, native local managers should be more rooted in their communities than non-locals and should act accordingly. Consistent with this, local managers are 33% less likely to lay off employees than their non-local industry peers following industry distress. Additionally, when managers are forced to lay off employees, establishments near managers' homes are less likely to experience layoffs than those located elsewhere. Locals finance these higher employment levels by spending cash, cutting investment, and selling assets. While there is no direct evidence that labor-friendly policies of locals have a differential impact on firm performance or value, only locals with weaker incentives implement these policies, suggesting that favoritism by locals may be suboptimal. Taken together these results suggest that managerial preferences impact corporate employment decisions.
Number of Pages in PDF File: 46
Keywords: behavioral finance, managerial preferences, labor, place attachment
JEL Classification: G02, G30, J50working papers series
Date posted: February 16, 2013 ; Last revised: August 9, 2013
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