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Corporate Governance, Favoritism and Careers

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Abstract

Careers are often shaped by favoritism, even though this undermines the performance of firms. When controlling shareholders weigh the efficiency costs of favoritism against its private benefits, the quality of corporate governance enhances meritocratic promotions and so encourages workers skill acquisition. The impact of labor market competition, instead, is ambiguous: by raising wages upon promotion, it fosters the supply of skilled labor but reduces the chances of promotion for skilled workers. With endogenous skill acquisition, there are multiple equilibria, and social welfare increases with the share of meritocratic firms. This brings out a new efficiency rationale for enhancing the quality of corporate governance.

Suggested Citation

  • Marco Pagano & Luca Picariello, 2022. "Corporate Governance, Favoritism and Careers," CSEF Working Papers 643, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 06 Apr 2023.
    • Handle: RePEc:sef:csefwp:643
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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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