Fighting for Talent: Risk-shifting, Corporate Volatility, and Organizational Change
In 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.
|Date of creation:||2002|
|Contact details of provider:|| Postal: Poschingerstrasse 5, 81679 Munich|
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo-group.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sah, Raaj Kumar & Stiglitz, Joseph E, 1988. "Committees, Hierarchies and Polyarchies," Economic Journal, Royal Economic Society, vol. 98(391), pages 451-470, June.
- Zingales, Luigi, 2000.
"In Search of New Foundations,"
CEPR Discussion Papers
2551, C.E.P.R. Discussion Papers.
- Raghuram G. Rajan & Luigi Zingales, 1998.
"The Governance of the New Enterprise,"
CRSP working papers
487, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Thomas Hellmann, 2007.
"When Do Employees Become Entrepreneurs?,"
INFORMS, vol. 53(6), pages 919-933, June.
- Pryor, Frederic L., 2001. "Will most of us be working for giant enterprises by 2028?," Journal of Economic Behavior & Organization, Elsevier, vol. 44(4), pages 363-382, April.
- Gromb, Denis & Scharfstein, David, 2002.
"Entrepreneurship in Equilibrium,"
CEPR Discussion Papers
3652, C.E.P.R. Discussion Papers.
- Laux, Christian, 2001. "Project-Specific External Financing and Headquarters Monitoring Incentives," Journal of Law, Economics and Organization, Oxford University Press, vol. 17(2), pages 397-412, October.
- Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
- Lazear, Edward P, 1986. "Salaries and Piece Rates," The Journal of Business, University of Chicago Press, vol. 59(3), pages 405-431, July.
- Julio Rotemberg & Garth Saloner, 2000. "Visionaries, Managers, and Strategic Direction," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 693-716, Winter.
- Richard E. Caves, 1998. "Industrial Organization and New Findings on the Turnover and Mobility of Firms," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 1947-1982, December.
When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_793. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Klaus Wohlrabe)
If references are entirely missing, you can add them using this form.