Selection versus Talent Effects on Firm Value

Briana Chang and Harrison Hong

No 24672, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G20 G24 G30 G34 (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-cfn, nep-hrm and nep-knm
Note: CF
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Published as Briana Chang & Harrison Hong, 2019. "Selection versus Talent Effects on Firm Value," Journal of Financial Economics, .

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