Seeking Alpha: Excess Risk Taking and Competition for Managerial Talent

Seeking Alpha: Excess Risk Taking and Competition for Managerial Talent

Viral Acharya, Marco Pagano, Paolo Volpin

Series number :

Serial Number: 
398/2014

Date posted :

December 01 2013

Last revised :

November 25 2018
SSRN Share

Keywords

  • short-termism • 
  • executive compensation • 
  • tail risk • 
  • managerial turnover

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.

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Authors

Professor
Real name:
Viral Acharya
Fellow, Research Member
Leonard N. Stern School of Business, New York University