When Promotions Induce Good Managers to Be Lazy
AbstractThis paper shows that when being perceived as a good manager is a necessary condition to be promoted, a priori talented managers may undertake excessively risky projects. Indeed, such a choice renders more difficult the updating of beliefs process regarding their actual types. In turn, good managers are induced to lower the level of effort they perform since the extent to which effort impacts the perception the market has about their talent is lessened. This adversely impacts the firms' profits. Hence, career concerns do not discipline good managers in our context. However, we show how employers can limit managerial slack by increasing monitoring
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Date of creation: 11 Aug 2004
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Promotions; career concerns; choice of risk; monitoring by corporate owners;
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