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Prediction Ability

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  • Katsuya Takii

    (University of Essex)

Abstract

This paper models managerial human capital as the ability to predict future events. My assignment model shows that a manager who has high prediction ability goes into a risky industry, because risk increases the marginal productivity of prediction ability. This conclusion contrasts with that of Lucas (1978). In Lucas's model talented managers simply manage bigger firms. The data supports my view: talented B-school graduates choose to work in risky industries, and the correlation between an ability measure and a risk measure is 0.75. The simulated assignment model fits B-school placement data quite well, and a 1 percent increase in the GMAT score of a B-school graduate implies a 158 percent increase in the risk of the firm to which the graduate is assigned. I also employ a dynamic analysis, which shows that prediction ability increases a firm's expected Tobin's Q and allows a firm to attain a higher expected growth rate. The COMPUSTAT dataset confirms these points as well.

Suggested Citation

  • Katsuya Takii, 2000. "Prediction Ability," Econometric Society World Congress 2000 Contributed Papers 1411, Econometric Society.
    • Handle: RePEc:ecm:wc2000:1411
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    References listed on IDEAS

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    Cited by:

    1. Takanori Adachi & Takao Asano, 2011. "Entrepreneurial Choice and Knightian Uncertainty with Borrowing Constraints," KIER Working Papers 803, Kyoto University, Institute of Economic Research.
    2. Takii, Katsuya, 2000. "Prediction ability and investment under uncertainty," Economics Discussion Papers 9991, University of Essex, Department of Economics.
    3. Katsuya Takii, 2007. "The Persistence of Differences in Productivity, Wages, Skill Mixes and Profits Between Firms," Discussion Papers in Economics and Business 07-10, Osaka University, Graduate School of Economics.
    4. Katsuya Takii, 2004. "Entrepreneurial Efficiency: An Empirical Framework and Evidence," Macroeconomics 0411006, University Library of Munich, Germany.
    5. Katsuya Takii, 2011. "Entrepreneurial Efficiency: Theory," The Japanese Economic Review, Japanese Economic Association, vol. 62(2), pages 196-214, June.
    6. Katsuya Takii, 2004. "Entrepreneurial Efficiency," Macroeconomics 0406007, University Library of Munich, Germany.
    7. Katsuya Takii, 2004. "The Value of Adaptability," Industrial Organization 0406004, University Library of Munich, Germany.
    8. Takii, Katsuya, 2008. "Fiscal policy and entrepreneurship," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 592-608, March.
    9. Katsuya Takii, 2003. "Prediction Ability," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 80-98, January.
    10. Sasaki, Masaru & Takii, Katsuya & Wan, Junmin, 2012. "Horizontal Transfer and Promotion: New Evidence and an Interpretation from the Perspective of Task-Specific Human Capital," IZA Discussion Papers 6486, Institute of Labor Economics (IZA).
    11. Takii, Katsuya & Sasaki, Masaru & Wan, Junmin, 2020. "Synchronized job transfer and task-specific human capital," Journal of the Japanese and International Economies, Elsevier, vol. 56(C).
    12. Katsuya Takii, 2008. "The Persistence of Differences in Productivity, Wages, Skill Mixes and Profits Between Firms in a Rapidly Changing Environment," OSIPP Discussion Paper 08E003, Osaka School of International Public Policy, Osaka University.
    13. Ueda, Masako & Li, Fei, 2005. "CEO-Firm Match and Principal-Agent Problem," CEPR Discussion Papers 5119, C.E.P.R. Discussion Papers.
    14. Katsuya Takii, 2009. "Entrepreneurial competition and its impact on the aggregate economy," Journal of Economics, Springer, vol. 97(1), pages 1-18, May.
    15. Takii, Katsuya, 2007. "The value of adaptability--Through the analysis of a firm's prediction ability," Journal of Economics and Business, Elsevier, vol. 59(2), pages 144-162.
    16. Larrisa V. Shavinina, 2011. "What Do We Know About Managerial Talent? The Case-Study of Richard Branson as a Great Project Manager," RePAd Working Paper Series UQO-DSA-wp2102011, Département des sciences administratives, UQO.

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    More about this item

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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