Seeking Alpha: Excess Risk Taking and Competition for Managerial Talent
AbstractWe present a model where managers are risk-averse, and firms compete for scarce managerial talent (“alpha”). When managers are not mobile across firms, firms provide efficient compensation, which allows for learning about managerial talent and insures low-quality managers. When instead managers can move across firms, firms cannot provide co-insurance among their employees. In anticipation, risk-averse managers may churn across firms before their true quality is learnt. The result is excessive risk-taking with pay for short-term performance and build up of long-term risks. We conclude with the analysis of policies to address the resulting inefficiency in firms’ compensation.
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Bibliographic InfoPaper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 312.
Date of creation: 26 Apr 2012
Date of revision: 10 Mar 2013
short-termism; executive compensation; tail risk; managerial turnover.;
Other versions of this item:
- Viral Acharya & Marco Pagano & Paolo Volpin, 2013. "Seeking Alpha - Excess Risk Taking and Competition for Managerial Talent," EIEF Working Papers Series 1303, Einaudi Institute for Economic and Finance (EIEF), revised Mar 2013.
- Viral V. Acharya & Marco Pagano & Paolo Volpin, 2013. "Seeking Alpha: Excess Risk Taking and Competition for Managerial Talent," NBER Working Papers 18891, National Bureau of Economic Research, Inc.
- Acharya, Viral V & Pagano, Marco & Volpin, Paolo, 2012. "Seeking Alpha: Excess Risk Taking and Competition for Managerial Talent," CEPR Discussion Papers 8905, C.E.P.R. Discussion Papers.
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-15 (All new papers)
- NEP-BEC-2012-05-15 (Business Economics)
- NEP-HRM-2012-05-15 (Human Capital & Human Resource Management)
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