59 Pages Posted: 1 Mar 2010 Last revised: 20 Jun 2013
Date Written: August 3, 2011
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: 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