Candidate Selection in Business Units: Be the Best or Surround Yourself with the Best?

Abstract

This study investigates, via an experiment, how the centralization of a firm’s candidate selection process and ambiguity about candidates affects the caliber of employees selected to join a business unit in a team-based environment. We find that, when ambiguity is present, incumbent employees’ concerns over protecting or advancing their status leads to lower quality candidates selected under a decentralized than under a centralized selection process. We also find that reducing ambiguity by providing a more complete information set of non-conflicting signals leads to better selection decisions regardless of whether selection is centralized or decentralized. Importantly, our results also show that the quality of the selected candidate remains lower under a decentralized versus centralized selection process even when a more complete set of consistent candidate-specific information is provided, suggesting that status considerations continue to influence employee selection decisions in organizations even when candidate-specific ambiguity is minimal. Overall, our results indicate that the information environment and non-pecuniary status considerations can significantly influence candidate selection decisions in organizations.

Keywords: Selection; Centralization; Information Ambiguity; Status

JEL Classification: M40; M41