Work Ethic, Employment Contracts, and Firm Value

48 Pages Posted: 26 Aug 2007 Last revised: 18 May 2008

See all articles by Bruce I. Carlin

Bruce I. Carlin

University of California, Los Angeles (UCLA) - Anderson School of Management

Simon Gervais

Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

Abstract

We analyze how the work ethic of managers impacts a firm's employment contracts, riskiness, growth potential, and organizational structure. Flat contracts are optimal for diligent managers because they reduce risk-sharing costs, but they attract egoistic agents who shirk and unskilled agents who add no value. Stable, bureaucratic firms with low growth potential are more likely to gain value from managerial diligence. Firms that hire from a virtuous pool of agents are more conservative in their investments and have a horizontal corporate structure. Our theory also yields several testable implications that distinguish it from standard agency models.

Keywords: agency theory, compensation contracts, ethics, virtue, incentives, firm structure, labor market

JEL Classification: G30, J30, M14, J41, L23, D21, D69

Suggested Citation

Carlin, Bruce I. and Gervais, Simon, Work Ethic, Employment Contracts, and Firm Value. Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=978850 or http://dx.doi.org/10.2139/ssrn.978850

Bruce I. Carlin

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Simon Gervais (Contact Author)

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
Box 90120
Durham, NC 27708-0120
United States
919-660-7683 (Phone)
919-883-5078 (Fax)

HOME PAGE: http://www.fuqua.duke.edu/faculty_research/faculty_directory/gervais/

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
301
Abstract Views
1,668
rank
99,853
PlumX Metrics