Matching Firms, Managers, and Incentives

Luigi Guiso, Andrea Prat, Oriana Bandiera and Raffaella Sadun

No 7207, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We provide evidence on the match between firms, managers and incentives using a new survey designed for this purpose. The survey contains information on a sample of executives' risk preferences and human capital, on the explicit and implicit incentives they face and on the firms they work for. We model a market for managerial talent where both firms and managers are heterogeneous. Following the sources of heterogeneity observed in the data, we assume that firms differ by ownership structure and that family firms, though caring about profits, put relatively more weight on benefits of direct control than non-family firms. Managers differ in their degree of risk aversion and talent. The entry of firms and managers, the choice of managerial compensation schemes and the manager-firm matching are all endogenous. The model yields predictions on several equilibrium correlations that find support in our data: (i) Family firms use managerial contracts that are less sensitive to performance, both explicitly through bonus pay and implicitly through career development; (ii) More talented and risk-tolerant managers are matched with firms that offer steeper contracts. (iii) Managers who face steeper contracts work harder, earn more and display higher job satisfaction. Alternative explanations may account for some of these correlations but not for all of them jointly.

Keywords: Family firms; Incentives; Managers; Matching; Risk aversion (search for similar items in EconPapers)
JEL-codes: D21 (search for similar items in EconPapers)
Date: 2009-03
New Economics Papers: this item is included in nep-bec and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Matching Firms, Managers, and Incentives (2015)
Working Paper: Matching firms, managers and incentives (2015)
Working Paper: Matching Firms, Managers, and Incentives (2012)
Working Paper: Matching firms, managers, and incentives (2012)
Working Paper: Matching Firms, Managers, and Incentives (2011)
Working Paper: Matching Firms, Managers and Incentives (2011)
Working Paper: Matching Firms, Managers, and Incentives (2009)
Working Paper: Matching Firms, Managers and Incentives (2009)
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