IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Matching Firms, Managers, and Incentives

  • Oriana Bandiera

    (London School of Economics)

  • Luigi Guiso

    (European University Institute)

  • Andrea Prat

    (London School of Economics)

  • Raffaella Sadun

    ()

    (Harvard Business School, Strategy Unit
    London School of Economics - Centre for Economic Performance)

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.hbs.edu/research/pdf/10-073.pdf
Download Restriction: no

Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 10-073.

as
in new window

Length: 59 pages
Date of creation: Feb 2010
Date of revision: Aug 2011
Handle: RePEc:hbs:wpaper:10-073
Contact details of provider: Postal: Soldiers Field, Boston, Massachusetts 02163
Phone: 617.495.6000
Web page: http://www.hbs.edu/
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.:

as in new window
  1. Andrei Shleifer & Fausto Panunzi & Mike Burkart, 2002. "Family Firms," FMG Discussion Papers dp406, Financial Markets Group.
    • Mike Burkart & Fausto Panunzi & Andrei Shleifer, 2003. "Family Firms," Journal of Finance, American Finance Association, vol. 58(5), pages 2167-2202, October.
  2. Luigi Guiso & Monica Paiella, 2003. "Risk Aversion, Wealth and Background Risk," Temi di discussione (Economic working papers) 483, Bank of Italy, Economic Research and International Relations Area.
  3. Rajesh Aggarwal & Andrew A. Samwick, 1998. "The Other Side of the Tradeoff: The Impact of Risk on Executive Compensation," NBER Working Papers 6634, National Bureau of Economic Research, Inc.
  4. Lippi, Francesco & Schivardi, Fabiano, 2010. "Corporate Control and Executive Selection," CEPR Discussion Papers 8031, C.E.P.R. Discussion Papers.
  5. Patrick Francois, 2007. "Making a difference," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 714-732, 09.
  6. Nicholas Bloom & Christos Genakos & Raffaella Sadun & John Van Reenen, 2011. "Management Practices Across Firms and Countries," CEP Discussion Papers dp1109, Centre for Economic Performance, LSE.
  7. Sraer, David & Thesmar, David, 2004. "Performance and Behaviour of Family Firms: Evidence from the French Stock Market," CEPR Discussion Papers 4520, C.E.P.R. Discussion Papers.
  8. Bloom, Nicholas & Van Reenen, John, 2006. "Measuring and Explaining Management Practices Across Firms and Countries," CEPR Discussion Papers 5581, C.E.P.R. Discussion Papers.
  9. Xavier Gabaix & Augustin Landier, 2006. "Why Has CEO Pay Increased So Much?," NBER Working Papers 12365, National Bureau of Economic Research, Inc.
  10. Morten Bennedsen & Kasper Meisner Nielsen & Francisco Pérez-González & Daniel Wolfenzon, 2007. "Inside the Family Firm: the Role of Families in Succession Decisions and Performance," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 647-691, 05.
  11. Dohmen, Thomas & Falk, Armin & Huffman, David B. & Sunde, Uwe & Schupp, Jürgen & Wagner, Gert G., 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," IZA Discussion Papers 1730, Institute for the Study of Labor (IZA).
  12. Cai, Hongbin & Li, Hongbin & Park, Albert & Zhou, Li-An, 2010. "Family Ties and Organizational Design: Evidence from Chinese Private Firms," CEPR Discussion Papers 7855, C.E.P.R. Discussion Papers.
  13. Bonin, Holger & Dohmen, Thomas & Falk, Armin & Huffman, David B. & Sunde, Uwe, 2006. "Cross-sectional Earnings Risk and Occupational Sorting: The Role of Risk Attitudes," IZA Discussion Papers 1930, Institute for the Study of Labor (IZA).
  14. Raffaella Sadun & John Van Reenen & Nick Bloom, 2008. "Measuring And Explaining Decentralization Across Firms And Countries," 2008 Meeting Papers 246, Society for Economic Dynamics.
  15. S Black & L Lynch, 1997. "How to Compete: The Impact of Workplace Practices and Information Technology on Productivity," CEP Discussion Papers dp0376, Centre for Economic Performance, LSE.
  16. Christian Gollier, 2004. "The Economics of Risk and Time," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572249, August.
  17. Thomas Lemieux & W. Bentley Macleod & Daniel Parent, 2006. "Performance Pay And Wage Inequality," Departmental Working Papers 2006-08, McGill University, Department of Economics.
  18. Holger M. Mueller & Thomas Philippon, 2006. "Family Firms, Paternalism, and Labor Relations," NBER Working Papers 12739, National Bureau of Economic Research, Inc.
  19. Ackerberg, D.A. & Botticini, M., 1999. "Endogenous Matching and the Empirical Determinants of Contract Form," Papers 96, Boston University - Department of Economics.
  20. Nicola Persico & Andrew Postlewaite & Dan Silverman, 2004. "The Effect of Adolescent Experience on Labor Market Outcomes: The Case of Height," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 1019-1053, October.
  21. Guiso, Luigi & Jappelli, Tullio, 1998. "Private Transfers, Borrowing Constraints and the Timing of Homeownership," CEPR Discussion Papers 2050, C.E.P.R. Discussion Papers.
  22. Luigi, Cannnari & Giovanni, D'Alessio, 2008. "Intergenerational Transfers in Italy," MPRA Paper 15111, University Library of Munich, Germany.
  23. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
  24. Edward P. Lazear & Paul Oyer, 2007. "Personnel Economics," NBER Working Papers 13480, National Bureau of Economic Research, Inc.
  25. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1995. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
  26. Miles S. Kimball, 1991. "Standard Risk Aversion," NBER Technical Working Papers 0099, National Bureau of Economic Research, Inc.
  27. Jan Eeckhout & Philipp Kircher, 2009. "Identifying Sorting - In Theory," PIER Working Paper Archive 09-007, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  28. Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 537-79, May.
  29. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
  30. Marianne Bertrand & Antoinette Schoar, 2006. "The Role of Family in Family Firms," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 73-96, Spring.
  31. Garicano, Luis & Hubbard, Thomas, 2005. "Managerial Leverage is Limited By the Extent of the Market: Hierarchies, Specialization and the Utilization of Lawyers' Human Capital," CEPR Discussion Papers 4924, C.E.P.R. Discussion Papers.
  32. Phillip Leslie & Paul Oyer, 2008. "Managerial Incentives and Value Creation: Evidence from Private Equity," NBER Working Papers 14331, National Bureau of Economic Research, Inc.
  33. Friebel, Guido & Giannetti, Mariassunta, 2002. "Fighting for Talent: Risk-Shifting, Corporate Volatility, and Organizational Change," CEPR Discussion Papers 3610, C.E.P.R. Discussion Papers.
  34. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
  35. Brian J. Hall & Jeffrey B. Liebman, 1997. "Are CEOs Really Paid Like Bureaucrats?," NBER Working Papers 6213, National Bureau of Economic Research, Inc.
  36. Marianne Bertrand & Antoinette Schoar, 2003. "Managing With Style: The Effect Of Managers On Firm Policies," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1169-1208, November.
  37. Illoong Kwon, 2004. "Threat of Dismissal: Incentive or Sorting?," Econometric Society 2004 North American Summer Meetings 114, Econometric Society.
  38. Timothy Besley & Maitreesh Ghatak, 2003. "Competition and incentives with motivated agents," LSE Research Online Documents on Economics 2202, London School of Economics and Political Science, LSE Library.
  39. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  40. Roe, Mark J., 2006. "Political Determinants of Corporate Governance: Political Context, Corporate Impact," OUP Catalogue, Oxford University Press, number 9780199205301, March.
  41. Casey Ichniowski & Kathryn Shaw, 2003. "Beyond Incentive Pay: Insiders' Estimates of the Value of Complementary Human Resource Management Practices," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 155-180, Winter.
  42. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, vol. 65(3), pages 365-395, September.
  43. Paul Oyer & Scott Schaefer, 2010. "Personnel Economics: Hiring and Incentives," NBER Working Papers 15977, National Bureau of Economic Research, Inc.
  44. Edmans, Alex & Gabaix, Xavier, 2010. "Risk and the CEO Market: Why Do Some Large Firms Hire Highly-Paid, Low-Talent CEOs?," CEPR Discussion Papers 7836, C.E.P.R. Discussion Papers.
  45. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
  46. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
  47. Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October.
  48. Marko Tervio, 2008. "The Difference That CEOs Make: An Assignment Model Approach," American Economic Review, American Economic Association, vol. 98(3), pages 642-68, June.
  49. Felipe Balmaceda, 2009. "Uncertainty, Pay for Performance, and Asymmetric Information," Journal of Law, Economics and Organization, Oxford University Press, vol. 25(2), pages 400-441, October.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hbs:wpaper:10-073. 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: (Soebagio Notosoehardjo)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.