NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Matching Firms, Managers and Incentives

Oriana Bandiera, Andrea Prat, Luigi Guiso, Raffaella Sadun

NBER Working Paper No. 16691
Issued in January 2011
NBER Program(s):   PR

We exploit a unique combination of administrative sources and survey data to study the match between firms and managers. The data includes manager characteristics, such as risk aversion and talent; firm characteristics, such as ownership; detailed measures of managerial practices relative to incentives, dismissals and promotions; and measurable outcomes, for the firm and for the manager. A parsimonious model of matching and incentive provision generates an array of implications that can be tested with our data. Our contribution is twofold. We disentangle the role of risk-aversion and talent in determining how firms select and motivate managers. In particular, risk-averse managers are matched with firms that offer low-powered contracts. We also show that empirical findings linking governance, incentives, and performance that are typically observed in isolation, can instead be interpreted within a simple unified matching framework.

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Document Object Identifier (DOI): 10.3386/w16691

Bandiera, Oriana, Luigi Guiso, Andrea Prat, and Raffaella Sadun. "Matching Firms, Managers, and Incentives." Journal of Labor Economics (forthcoming).

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