Mobility Restrictions and Risk-Related Agency Conflicts: Evidence from a Quasi-Natural Experiment

82 Pages Posted: 3 Mar 2020 Last revised: 20 Mar 2020

See all articles by Emdad Islam

Emdad Islam

Monash University

Ronald W. Masulis

University of New South Wales, Sydney; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Lubna Rahman

Monash University

Date Written: March 10, 2020

Abstract

Stricter enforcement of manager post-employment restrictions that strengthen trade secrets protections also limits managers’ ability to accept better employment opportunities. We find that heightened managerial career concerns due to these mobility restrictions reduce firm risk taking and distort corporate financing decisions, particularly in firms whose managers value outside employment opportunities relatively more. The quality of firm investment decisions is also compromised, as indicated by more negative market reactions to acquisition announcements. These findings support managerial career concerns driving risk-related agency conflicts that reduce firm value. Our evidence suggests that shareholders benefit from flexible 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

Islam, Md Emdadul and Masulis, Ronald W. and Rahman, Lubna, Mobility Restrictions and Risk-Related Agency Conflicts: Evidence from a Quasi-Natural Experiment (March 10, 2020). European Corporate Governance Institute – Finance Working Paper No. 665/2020. Available at SSRN: https://ssrn.com/abstract=3538945 or http://dx.doi.org/10.2139/ssrn.3538945

Md Emdadul Islam

Monash University ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Ronald W. Masulis (Contact Author)

University of New South Wales, Sydney ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Lubna Rahman

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

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