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Managerial Entrenchment and the Market for Talent

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  • Fabio Feriozzi

Abstract

This paper studies how the nature of managerial skills affects firms’ governance decisions. As required skills shift from firm specific toward more general abilities, replacing an underperforming CEO with an outside hire becomes more profitable for shareholders. Therefore, firms adopt stronger governance arrangements to limit the entrenchment of incumbent CEOs and exploit the improved opportunities offered by the market for talent. The analysis rationalizes the observed trend toward stronger corporate governance and offers novel empirical predictions concerning the relationship between managerial entrenchment, firm size, and the nature of managerial skills. (JEL D83, D86, G34)Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Fabio Feriozzi, 2024. "Managerial Entrenchment and the Market for Talent," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 13(1), pages 235-263.
    • Handle: RePEc:oup:rcorpf:v:13:y:2024:i:1:p:235-263.
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    File URL: http://hdl.handle.net/10.1093/rcfs/cfac028
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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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