Promotions, Turnover, and Performance Evaluation: Evidence from the Careers of Division Managers
42 Pages Posted: 21 Mar 2006 Last revised: 9 Jun 2010
Date Written: December 16, 2008
We study turnover and promotions of division managers in multidivisional firms. Turnover is negatively related to divisional accounting performance, positively related to industry performance, but not significantly related to firm performance or the performance of other divisions. Consistent with tournament theory, promotions are significantly related to whether one division is performing better than others, but are not significantly related to the magnitude of any performance difference. A simple performance metric, divisional ROA, appears more closely related to job allocation decisions than several alternatives. Our evidence is consistent with the hypothesis that accounting information is used by firms when evaluating managerial personnel.
Keywords: Turnover, Promotions, Internal labor markets, Performance measurement, Division managers
JEL Classification: J41, G34, M40, M46, M51, L22
Suggested Citation: Suggested Citation