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When Promotions Induce Good Managers to Be Lazy

  • Antoine Renucci
  • Frédéric Loss

This 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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Paper provided by Econometric Society in its series Econometric Society 2004 North American Winter Meetings with number 263.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nawm04:263
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  1. DeMarzo, Peter M & Duffie, Darrell, 1995. "Corporate Incentives for Hedging and Hedge Accounting," Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 743-71.
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  19. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
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