Selection versus talent effects on firm value

Briana Chang and Harrison Hong

Journal of Financial Economics, 2019, vol. 133, issue 3, 751-763

Abstract: Measuring the value of labor-market hires for stock prices, be it underwriters when firms go public (IPOs) or chief executive officers (CEOs), is difficult due to selection. Opaque firms with higher costs of capital benefit more from prestigious underwriters, while productive firms benefit more from talented CEOs. Using assignment models, we show that the importance of talent (or agent heterogeneity) relative to selection (or firm heterogeneity) is measured by wage increases across agents of different compensation ranks divided by changes in output across their firms. The median of this ratio is 0.5% for underwriters and 2% for CEOs.

Keywords: CEO; Underwriters; IPO Underpricing; Prestige; Talent; Selection; Sorting (search for similar items in EconPapers)
JEL-codes: G20 G24 G30 G34 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:133:y:2019:i:3:p:751-763

DOI: 10.1016/j.jfineco.2019.01.001

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