Mobility Restrictions and Risk-Related Agency Conflicts
78 Pages Posted: 3 Mar 2020 Last revised: 29 Apr 2022
Date Written: September 5, 2020
Stricter enforcement of post-employment restrictions that strengthens trade secrets protection also limits CEOs’ alternative employment opportunities. We find that such mobility restrictions, which heightened CEO career concerns can dampen their risk-taking incentives and distort corporate financing decisions, particularly in firms whose CEOs value outside employment opportunities relatively highly. Stock market reactions to acquisition announcements suggest that intensified CEO career concerns from mobility restrictions compromise the quality of investment decisions. More generally, managerial career concerns adversely affect shareholder value by exacerbating risk-related agency conflicts. Thus, our evidence suggests that shareholders can benefit from more unconstrained labor markets that promote managerial risk-taking.
Keywords: Career Concerns, Risk-Related Agency Conflicts, Leverage, Acquisitions
JEL Classification: G32, G34, J24, J61, K31
Suggested Citation: Suggested Citation