Do Local Managers Give Labor an Edge?

Abstract:     
Based on the psychological theory of place attachments, native local managers are 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 pay for 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: 45

Keywords: behavioral finance, managerial preferences, labor, place attachment

JEL Classification: G02, G30, J50

working papers series