Abstract:

We combine unique administrative and survey data to study the match between firms and managers. The data include manager characteristics, firm characteristics, detailed measures of managerial practices, and outcomes for the firm and the manager. A parsimonious model of matching and incentives generates implications that we test with our data. We use the model to illustrate how risk aversion and talent determine how firms select and motivate managers. We show that empirical links between firm governance, incentives, and performance, which have so far been studied in isolation, can instead all be interpreted within our simple unified matching framework.