Do Local Managers Give Labor an Edge?
Scott E. Yonker
Indiana University - Kelley School of Business - Department of Finance; Cornell University
December 23, 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. Locals finance higher employment by spending cash, cutting investment, and selling assets. While there is no direct evidence that these labor-friendly policies impact 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: 50
Keywords: behavioral finance, managerial preferences, labor, place attachment
JEL Classification: G02, G30, J50
Date posted: February 16, 2013 ; Last revised: May 14, 2014
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