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Matching Firms, Managers and Incentives

Listed author(s):
  • Oriana Bandiera
  • Andrea Prat
  • Luigi Guiso
  • Raffaella Sadun

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.

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File URL: http://www.nber.org/papers/w16691.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16691.

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Date of creation: Jan 2011
Publication status: published as Bandiera, Oriana, Luigi Guiso, Andrea Prat, and Raffaella Sadun. "Matching Firms, Managers, and Incentives." Journal of Labor Economics (forthcoming).
Handle: RePEc:nbr:nberwo:16691
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