Executive Quirks in Operational Decisions
Richard K. Lai
The Wharton School, Univ. of Pennsylvania
May 5, 2006
We ask if corporate executives have fixed effects (quirks) that explain perational decisions made in firms, independent of firm effects. We replicate the approach in Bertrand et al. (2003), solving the empirical challenge of distinguishing firm and executive effects by constructing a dataset of executives who move from one firm to another. We find that executives indeed exhibit fixed effects separate from firm effects. These quirks are large, although there is a wide dispersion of sizes among executives. The quirks also come in themes, such as a bias toward investing in human rather than physical capital. We also find that quirks mostly lead to inefficient outcomes for firms. Finally, we link quirks to observable characteristics of executives, such as their age or education. We conclude by arguing for an increased focus on individual effects in operations management research.
Number of Pages in PDF File: 33
Keywords: operations management, executive fixed effects, firm fixed effects, agency
JEL Classification: D23, D82, M11, J24, J41working papers series
Date posted: October 11, 2005
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