Matching Firms, Managers, and Incentives

59 Pages Posted: 1 Mar 2010 Last revised: 20 Jun 2013

Oriana Bandiera

London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Luigi Guiso

Einaudi Institute for Economics and Finance (EIEF)

Andrea Prat

London School of Economics (LSE) - Department of Economics; Centre for Economic Policy Research (CEPR)

Raffaella Sadun

Harvard University - Strategy Unit; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Multiple version iconThere are 3 versions of this paper

Date Written: August 3, 2011

Abstract

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.

Suggested Citation

Bandiera, Oriana and Guiso, Luigi and Prat, Andrea and Sadun, Raffaella, Matching Firms, Managers, and Incentives (August 3, 2011). Journal of Labor Economics, Forthcoming; Harvard Business School Strategy Unit Working Paper No. 10-073. Available at SSRN: https://ssrn.com/abstract=1561903 or http://dx.doi.org/10.2139/ssrn.1561903

Oriana Bandiera

London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7519 (Phone)
+44 20 7055 6951 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Luigi Guiso

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Sallustiana 62
Rome, 00187
Italy
+39 06 4792 4858 (Phone)
+39 06 4792 4872 (Fax)

HOME PAGE: http://www.eief.it/faculty-visitors/faculty-a-z/luigi-guiso/

Andrea Prat

London School of Economics (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 6992 (Phone)
+44 20 7955 6951 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Raffaella Sadun (Contact Author)

Harvard University - Strategy Unit ( email )

Harvard Business School
Soldiers Field Road
Boston, 02163
United States

HOME PAGE: http://people.hbs.edu/rsadun

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

HOME PAGE: http://cep.lse.ac.uk/_new/staff/person.asp?id=1758

Paper statistics

Downloads
291
Rank
71,979
Abstract Views
1,466