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Matching firms, managers, and incentives

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  • Bandiera, Oriana
  • Guiso, Luigi
  • Prat, Andrea
  • Sadun, Raffaella

Abstract

We exploit a unique combination of administrative sources and survey data to study the match between firms and managers. The data includes manager characteristics, such as risk aversion and talent; firm characteristics, such as ownership; detailed measures of managerial practices relative to incentives, dismissals and promotions; and measurable outcomes, for the firm and for the manager. A parsimonious model of matching and incentive provision generates an array of implications that can be tested with our data. Our contribution is twofold. We disentangle the role of risk-aversion and talent in determining how firms select and motivate managers. In particular, risk-averse managers are matched with firms that offer low-powered contracts. We also show that empirical findings linking governance, incentives, and performance that are typically observed in isolation, can instead be interpreted within a simple unified matching framework.

Suggested Citation

  • Bandiera, Oriana & Guiso, Luigi & Prat, Andrea & Sadun, Raffaella, 2012. "Matching firms, managers, and incentives," LSE Research Online Documents on Economics 121776, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:121776
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    More about this item

    Keywords

    personnel economics; hiring policy; management; performance related pay; performance incentives;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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