Fighting for Talent: Risk-shifting, Corporate Volatility, and Organizational Change
AbstractIn the nineties, average firm size decreased, organisations decentralized, and workers preferences shifted from large to small firms. Our model identifies the economic forces behind this trend. Small firms with little capital at risk are subject to risk-shifting. They realize more of their workers‘ risky ideas, helping small firms to poach creative workers from better capitalized firms. This advantage increases if a) workers receive easier credit access, and b) technological progress raises the payoff from new ideas, provided that it remains very difficult to distinguish good ideas from bad ideas. As small firms take excessive risk, average enterprise profitability decreases, while bankruptcy increases. Moreover, large firms react through ineffecient organizational changes.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 793.
Date of creation: 2002
Date of revision:
financial development; spin-offs; sorting; organizations; markets;
Other versions of this item:
- Friebel, Guido & Giannetti, Mariassunta, 2002. "Fighting for Talent: Risk-Shifting, Corporate Volatility, and Organizational Change," CEPR Discussion Papers 3610, C.E.P.R. Discussion Papers.
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
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