Seeking Alpha: Excess Risk Taking and Competition for Managerial Talent

Viral Acharya, Marco Pagano and Paolo Volpin

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We present a model where firms compete for scarce managerial talent ("alpha") and managers are risk-averse. When managers cannot move across firms after being hired, employers learn about their talent, allocate them efficiently to projects and provide insurance to low-quality managers. When instead managers can move across firms, firm-level coinsurance is no longer feasible, but managers may self-insure by switching employer to delay the revelation of their true quality. However this results in inefficient project assignment, with low-quality managers handling too risky projects. The model has several empirical predictions and policy implications.

Keywords: short-termism; long-term risk; managerial turnover; mobility; competition; executive compensation (search for similar items in EconPapers)
JEL-codes: D62 G32 G38 J33 (search for similar items in EconPapers)
Date: 2012-04-26, Revised 2016-05-07
New Economics Papers: this item is included in nep-bec and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

Published in Review of Financial Studies, 2016, 29, No. 10 (Editor’s Choice), pp. 2565-2599

Downloads: (external link)
http://www.csef.it/WP/wp312.pdf (application/pdf)

Related works:
Journal Article: Seeking Alpha: Excess Risk Taking and Competition for Managerial Talent (2016)
Working Paper: Seeking Alpha - Excess Risk Taking and Competition for Managerial Talent (2016)
Working Paper: Seeking Alpha: Excess Risk Taking and Competition for Managerial Talent (2013)
Working Paper: Seeking Alpha: Excess Risk Taking and Competition for Managerial Talent (2012)
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