Seeking Alpha: Excess risk taking and competition for managerial talent

Acharya, V., Pagano, M. & Volpin, P. (2016). Seeking Alpha: Excess risk taking and competition for managerial talent. The Review of Financial Studies, 29(10), pp. 2565-2599. doi: 10.1093/rfs/hhw036

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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 projects that are too risky for them.

Item Type: Article
Additional Information: This is a pre-copyedited, author-produced PDF of an article accepted for publication in The Review of Financial Studies following peer review. The version of record Volpin, P., Acharya, V. & Pagano, M. (2016) Seeking Alpha: Excess risk taking and competition for managerial talent. The Review of Financial Studies is available online at: http://dx.doi.org/.
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/14706

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