Executive Quirks in Operational Decisions

33 Pages Posted: 11 Oct 2005

See all articles by Richard K. Lai

Richard K. Lai

The Wharton School, Univ. of Pennsylvania

Date Written: May 5, 2006

Abstract

We ask if corporate executives have fixed effects (quirks) that explain perational decisions made in firms, independent of firm effects. We replicate the approach in Bertrand et al. (2003), solving the empirical challenge of distinguishing firm and executive effects by constructing a dataset of executives who move from one firm to another. We find that executives indeed exhibit fixed effects separate from firm effects. These quirks are large, although there is a wide dispersion of sizes among executives. The quirks also come in themes, such as a bias toward investing in human rather than physical capital. We also find that quirks mostly lead to inefficient outcomes for firms. Finally, we link quirks to observable characteristics of executives, such as their age or education. We conclude by arguing for an increased focus on individual effects in operations management research.

Keywords: operations management, executive fixed effects, firm fixed effects, agency

JEL Classification: D23, D82, M11, J24, J41

Suggested Citation

Lai, Richard K., Executive Quirks in Operational Decisions (May 5, 2006). Available at SSRN: https://ssrn.com/abstract=815344 or http://dx.doi.org/10.2139/ssrn.815344

Richard K. Lai (Contact Author)

The Wharton School, Univ. of Pennsylvania ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215 898 1630 (Phone)

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