Corporate Governance, Favoritism and Careers

Marco Pagano and Luca Picariello

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

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.

Keywords: corporate governance; careers; favoritism; merit; job selection; skill development. (search for similar items in EconPapers)
JEL-codes: D21 D23 M50 M51 (search for similar items in EconPapers)
Date: 2022-04-19, Revised 2023-04-06
New Economics Papers: this item is included in nep-cfn
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Related works:
Working Paper: Corporate Governance, Favoritism and Careers (2022)
Working Paper: Corporate Governance, Favoritism and Careers (2022)
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