Technological Similarity and the Market for Managerial Talent
60 Pages Posted: 24 Jan 2020
Date Written: December 31, 2019
We show that the similarity of a firm’s technological expertise with other firms affects outcomes in the managerial labor market. Using each firm’s patent portfolio to estimate its technological expertise, we find that a firm’s similarity in technological expertise with other firms is strongly related to the benchmark group used for CEO compensation and to job transition patterns. Furthermore, we provide evidence that CEO compensation is increasing in the level of a firm’s overall technological similarity with other firms. Our results thus demonstrate the crucial role of technological similarity in determining the value of outside options and the boundaries of the managerial labor market.
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