Fighting for Talent: Risk-Shifting, Corporate Volatility, and Organizational Change
In the nineties, average firm size decreased, organizations decentralized, and workers preferences shifted from large to small firms. Our model identifies the economic forces behind this trend. Small firms with little capital 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 inefficient organizational changes.
|Date of creation:||Oct 2002|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
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.:
- 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.
- Sah, Raaj Kumar & Stiglitz, Joseph E, 1988. "Committees, Hierarchies and Polyarchies," Economic Journal, Royal Economic Society, vol. 98(391), pages 451-70, June.
- Denis Gromb & David Scharfstein, 2002.
"Entrepreneurship in Equilibrium,"
NBER Working Papers
9001, National Bureau of Economic Research, Inc.
- 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.
- Hellmann, Thomas F., 2002.
"When Do Employees Become Entrepreneurs?,"
1770, Stanford University, Graduate School of Business.
- Luigi Zingales, 2000.
"In Search of New Foundations,"
Journal of Finance,
American Finance Association, vol. 55(4), pages 1623-1653, 08.
- Zingales, Luigi, 2000. "In Search of New Foundations," CEPR Discussion Papers 2551, C.E.P.R. Discussion Papers.
- Luigi Zingales, 2000. "In Search of New Foundations," NBER Working Papers 7706, National Bureau of Economic Research, Inc.
- Luigi Zingales, 2000. "In Search of New Foundations," CRSP working papers 515, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- 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.
- Julio Rotemberg & Garth Saloner, 2000. "Visionaries, Managers, and Strategic Direction," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 693-716, Winter.
- Lazear, Edward P, 1986. "Salaries and Piece Rates," The Journal of Business, University of Chicago Press, vol. 59(3), pages 405-31, July.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:3610. 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: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct email address
If references are entirely missing, you can add them using this form.