Managerial Labor Market Research Articles

An Empirical Analysis of Director Turnover in US Banks During the Financial Crisis

We examine the impact of bank risk-taking and performance on the director labor market outcomes of 3,263 bank directors associated with 279 publicly listed US banks during the financial crisis and subsequently. We find that risk-taking before the financial crisis increases the likelihood of turnover during the financial crisis for bank directors, particularly if the bank does not perform well relative to its peers. Consistent with the evidence for directors of non-financial firms, we find that directors of banks that performed relatively well during the financial crisis were less likely to experience turnover on the bank board. Surprisingly, the directors leaving the board before turning 70 years of age held fewer committee assignments, were less busy, had smaller networks, were less likely to be independent, and with larger banks and boards. Overall, we find evidence of bank performance influencing director turnover during and after the financial crisis.

Do Employees’ Social Media Ratings of the CEO Inform the Director Labor Market?

Do Employees’ Social Media Ratings of the CEO Inform the Director Labor Market?

Managerial Labor Market Mobility and Corporate Social Responsibility

ABSTRACT The staggered rejection of the inevitable disclosure doctrine (IDD) by state courts increases the mobility of both managerial and rank-and-file employee labor markets. Flammer and Kacperczyk (2019) report a positive impact of the IDD rejection on firms’ corporate social responsibility (CSR) and interpret the finding as managers using CSR to retain employees. We propose and test managerial incentives to grow their external employment potential as another explanation. We find that the IDD rejection impact is stronger when industry firms are more likely to hire external CEOs and when external tournament prizes are greater, and weaker when CEOs are held up by unvested equity grants and when governance control is stronger. We fail to find that the IDD rejection effect varies with employee incentives. We further find that CSR investment does help CEOs obtain sought-after personal benefits by increasing their total pay and the likelihood of landing a new executive position. JEL Classifications: J44; J62; M14.

Gender and Managerial Job Mobility: Career Prospects for Executives Displaced by Acquisitions

Abstract We investigate how men and women fare in the managerial labor market in the plausibly exogenous circumstance of their firms being acquired when most target-firm managers (about 90%) are displaced. These career disruptions result in a larger drop in rank and compensation for female managers, despite similar job search attributes. Gender differences are mitigated when hiring firms have more women in upper-echelon positions. Rich managerial experience and external board service also reduce gender-related differences. Overall, results point to a (implicit) “gender penalty” in terms of managerial job mobility, but also indicate contexts in which penalty is alleviated, and even reversed.

CEO networks and the labor market for directors

Directors at firms with well-connected CEOs are more likely to obtain directorships at firms that are connected to the CEOs. Recommended directors do not become beholden to the CEO. Reciprocity is an important determinant of recommendations because CEOs are more likely to recommend their directors if they received help from their network filling vacant board positions. CEOs also benefit strategically from the additional appointments of their directors. Analyses of appointment announcement returns and director election results show that shareholders are not concerned by such recommendations. The results highlight the importance of CEOs as intermediaries in the director labor market. • CEOs function as intermediaries in the director labor market. • Well-connected CEOs recommend their directors to firms linked to the CEO. • Recommended directors do not become beholden to the CEO. • CEOs recommend their directors for strategic and reciprocity purposes.

Optimal Regulation of Noncompete Contracts

I study regulation of noncompete employment contracts, assessing the trade‐off between restricting worker mobility and encouraging firm investment. I develop an on‐the‐job search model in which firms and workers sign dynamic wage contracts with noncompete clauses and firms invest in their workers' general human capital. Employers use noncompete clauses to enforce buyout payments when their workers depart, ultimately extracting rent from future employers. This rent extraction is socially excessive, and restrictions on these clauses can improve efficiency. The optimal regulation policy is characterized. In an application to the managerial labor market using a novel contract data set, I find the optimal policy to be quantitatively close to a ban.

Determinants of Director Remuneration: Monitoring Human Capital and Social Embeddedness

The determinants of director compensation have been studied across the theoretical spectrum with varying findings. Agency theory suggests that monitoring human capital enhances the ability of the individuals to be effective monitors and should be associated with higher director compensation. At the same time, social embeddedness impedes the ability to monitor, and it should be associated with lower director compensation. In contrast, behavioral theory of corporate governance suggests ingratiating behavior and social embeddedness of directors increases their likelihood of higher value, and thus it should lead to higher director compensation. We attempt to reconcile these contradictory predictions of the agency theory and behavioral theory of the firm. We examine the same through the labor market for directors in India using a unique longitudinal dataset of director appointments and compensation in India over 2007-2016. We also exploit a natural experiment brought about by the implementation of the significant corporate governance reforms (Companies Act of India, 2013) to test the labor market norms posited by agency theory versus the behavioral theory of the firm. The finding of our study indicates the importance of monitoring human capital and social embeddedness as they positively affect directors' compensation. Our results also highlight that in emerging market contexts marked by the presence of institutional voids, when the implementation of corporate governance reform increases the risks for individual directors on account of corporate misconduct, they respond by optimizing their structural positions in the interlock network by increasing their reach but reducing their influence/salience in the network.

Norm Preservation View in The Director Labor Market

Extant research on independent director careers argues that CEOs favor independent directors with social ties. This study departs from the corporate elite view of board studies, which asserts that all social relationships between the CEO and director will be mutually beneficial. This study addresses a critical construct coined as “norm preservation,” which suggests that the norm of social experiences between individuals preserve over time. In a norm preservation view, the critical question is, “what is the consequence of the former conforming or conflicting functional norms between the CEO and director to the director’s tenure?” To test this idea, we collect a sample of 431 S&P 1000 firms with an independent director-firm-year of 37,056 observations between 2003 and 2012. Using conditional fixed-effects logistic estimation and Cox survival model, we find that the former team-based professional norm between the independent director and CEO is critical in the independent director’s tenure.

Battle of the Classes. Social Class and Work Status in Determining Women Director Appointments

The literature on women on board of directors provides limited insights on how the social class origins of the women executives influence their selection on corporate boards and their career trajectories. Gender research in management has narrowly focused on the disadvantages women experience in the workplace. However, women's unique and complex social identities with multiple group memberships, such as social class and work status, can lead to paradoxical experiences in the workplace, with women experiencing both advantages and disadvantages. To shed new light on the role of multiple identities for women executives in gaining board directorship, I leverage the social classification based on “caste” in India. I develop a theoretical model to show the influence of social class, work status, and social class mobility in director selection market for women executives. The model predicts four distinct profiles of women executives and their outcomes in the director labor market. By using the intersectionality of social class and work status, I propose that women executives with high work status and low social class will be able to display their authority and dominance in the workplace and craft credible professional executive images at work, and hence will be buffered from the stereotypic bias of incompetence due to gender and social class. In contrast, for women directors with high social class but low work status, high social class will mitigate the adverse effects of low work status by signaling their high social capital through their homophilic kinship ties. Moreover, the director appointments of women executives with lower work status will allow upward mobility of these director profiles and improve their future career prospects in the corporate elite.

Paying for pollution: Air quality and executive compensation

Exposure to air pollution is linked to an increased severity of physical and mental illnesses. This study examines whether and to what extent air pollution affects executive compensation in Chinese listed firms. We document a significant and positive association between air pollution and executive compensation, indicating that firms located in more polluted areas have to pay a higher wage premium to their executives in order to compensate for unpleasant air quality. Cross-sectional analyses further reveal that the pay premium for air pollution depends on managerial labor market competition, substitution of other livability factors, as well as public attention on air pollution. The evidence thus highlights the importance of information completeness in optimal contracting and provides firms another market-oriented incentive to closely follow the current environmental protection regulation of China.

ESG Issues and Career Prospects of Directors: Evidence from the International Director Labor Market

AbstractUsing an international sample of firms, we investigate the career prospects of directors of firms experiencing negative ESG issues. By tracking the same director at the same firm over time, we document a significant drop in seats held at other public firms’ boards following intense negative media coverage of an ESG problem occurring at a given director's focal firm. Losses of seats at other firms are concentrated among executive directors, among directors of firms located in countries with high environmental and social norms, and among directors of firms located in countries with bank‐based systems. Nonexecutive directors and directors of firms located in less stakeholder‐oriented countries are not penalized for ESG issues by the director labor market.

Technological Fit and the Market for Managerial Talent

AbstractWe show that the similarity of a firm’s technological expertise with that of other firms affects managerial labor market outcomes. Using each firm’s patent portfolio to estimate its technological expertise, we find that its similarity in technological expertise with other firms is strongly related to the benchmark group used for CEO compensation and job transitions. Furthermore, we show that a firm’s CEO pay is positively associated with the CEO compensation levels of technologically similar firms. Our results thus demonstrate the crucial role of technological similarity in determining the value of outside options and the boundaries of the managerial labor market.

Post‐CEO retirement appointments and financial accounting—Evidence from CEO turnovers

AbstractPrior research has shown that when boards seek to appoint CEOs as outside directors, the director labor market rewards CEOs' accounting performance. This study examines whether the external labor market's assessment of the accounting performance is moderated by CEOs' past exercise of financial reporting discretion in the form of accruals and real earnings management and financial statement readability. Our results show a positive association between post‐CEO board opportunities and within‐GAAP accruals management as well as to more readable financial statements. Earnings restatements are associated with fewer board positions and director pay. However, the director labor market appears to punish R&D expenditure above the industry median, suggesting that boards view overinvestment as a risky avenue for growth. Finally, the results suggest that for CEOs with planned retirement, the director labor market provides some mitigating effect on the horizon problem.

Corporate social performance and the managerial labor market

This paper examines the impact of a firm’s social performance on the CEO’s employment prospects. We find that CEOs are more (less) likely to leave office when there is a significant recent decline (improvement) in social performance. We then track departing CEOs’ subsequent employment records and find that the social performance of their previous employers improves their labor market outcomes. These CEOs are more likely to find a new executive position, move up to a larger public firm, and receive higher compensation from the new public firm. Using a Cox proportional hazard model, we find that the strong social performance of the previous employer helps CEOs find their next executive positions sooner. Overall, our results suggest that corporate social performance enhances CEOs’ labor market potential.

Are Directors Rewarded for Excellence? Evidence from Reputation Shocks and Career Outcomes

AbstractThis study examines whether the labor market rewards directors for individual excellence. We use national director awards to capture large, positive shocks to individual reputation. We find strong evidence that the labor market recognizes and rewards “superstar” directors. Award events lead to positive announcement returns and increase awardees’ chances of gaining new board seats at prestigious firms. Consistent with theories of career concerns and labor market signaling, the reputational effects are greater for younger directors and for nonoverboarded directors. Overall, our findings offer new insights into the nature of reputation and rewards in the upper echelon of the director labor market. (JEL G30, G34, G39)Received August 15, 2020; editorial decision May 11, 2021 by Editor Andrew Ellul. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Do CEOs get rewarded for CSR activities in the director labor market?

PurposeThe purpose of this paper is to determine if Chief Executive Officers (CEOs) are rewarded or punished in the corporate director labor market for engaging in corporate social responsibility (CSR) activities.Design/methodology/approachThe authors empirically examine the relation between CEOs' CSR engagement and their corporate board appointments in retirement using logit, ordinary least squares (OLS) and Poisson regression models.FindingsResults indicate that CSR engagement has significant director labor market consequences for retiring CEOs. Specifically, CSR engagement has a favorable impact on the ability of retired CEOs to obtain board seats and board seats at larger firms generally associated with higher pay, even after controlling for firm performance and other determinants previously documented to explain director selection. The authors also find evidence that CEOs of firms with high CSR engagement build up their firms' CSR scores over time as they approach retirement, which is consistent with the labor market for directors providing incentives to attract CEOs to board service in retirement.Originality/valueBy examining the relationship between a CEO's CSR engagement and their external corporate board directorships, this paper advances the understanding of the determinants of corporate board appointments. Further, while most prior research assesses the value of CSR engagement by looking at the relation between CSR engagement and that firm's performance, this is the first study to our knowledge to look outside the firm to determine if CSR engagement has value to the CEO.

Repeated engagement in misconduct by executives involved with financial restatements

Recidivism, or repeated engagement in misconduct despite being sanctioned, among top executives has received limited attention in the literature on organizational misconduct. Based on insights from fairness theory, supplemented by insights from attribution theory, we argue that the likelihood of an executive recidivating is associated with the perceived fairness of the sanctions he/she faces following the initial misconduct. We examine one consequence of a common managerial labor market sanction – lower compensation – on the likelihood of recidivism.Using a sample of Chief Financial Officers (CFOs) who left their positions following financial misconduct at their firms and subsequently migrated to another public firm in the same capacity, we test and find support for our prediction. A number of robustness and endogeneity tests add support to our recidivism model.

Does the Director Labor Market Settle Up? Examining Directorships for Fired CEOs

Prior research finds that dismissed CEOs suffer consequences in the executive labor market, such as fewer employment opportunities and reduced subsequent compensation. Such research suggests dismissed CEOs face stigma and ex post settling up in the executive labor market due to their poor executive ability. We extend such theory to argue that these processes extend to an alternative labor market: public company directorships. We argue, however, that the reduced odds of dismissed CEOs of gaining directorships is influenced by two considerations: 1) causal accounts for CEO dismissal related to violations of fiduciary duty and personal conduct and 2) the accumulated social, human, and reputational capital of the CEO. Following 280 dismissed CEOS, we find that CEOs dismissed with causal accounts suggesting fiduciary duty violations receive fewer future board appointments. For those without such stigmatizing causal accounts, we find evidence that social, human, and reputational capital enhance perceptions of the CEO’s ability, reducing the penalties faced in the director labor market. Our findings suggest that dismissed CEOs have future employment chances as board members, but those directorship opportunities are shaped by the reasons for their dismissal and the assets and skills they may bring to any future board as a director.

Simulating the Principal-Agent Relationship between Enterprise Owners and Professional Managers Using Evolutionary Game Theory and System Dynamics

The separation of ownership and management is a common operation mode in modern enterprises, which establishes the principal-agent relationship between modern enterprise owners and professional managers. Due to the information asymmetry and interest conflicts between the principal and agent, the principal-agent problem will occur and affect the efficiency of enterprise operations. Therefore, it is necessary to propose measures to improve the principal-agent relationship. This paper analyzed the principal-agent problem between enterprise owners and professional managers based on system dynamics, evolutionary game, and principal-agent theory and built a principal-agent evolutionary game model to analyze the rule of strategic choices and predict the equilibrium outcomes of different scenarios. In addition, the influence of different factors on strategic choices was simulated by the system dynamics model. The results depicted that the basic benefits and costs of cooperation are the key factors of the strategic choices, and the gap between the expected payoffs of different strategies also affects the probability of choosing those cooperative strategies. Proper supervision, standardization of the managerial labor market, and establishment of long-term incentives are crucial to cooperation between enterprise owners and professional managers.

Executive Network Centrality and Corporate Reporting

This paper investigates the association of corporate reporting and executive network centrality, which measures an executive’s relative position in a massive network consisting of outside corporate leaders. I find that high-centrality chief executive officers (CEOs) and chief financial officers (CFOs) are generally more likely to engage in financial misreporting than low-centrality CEOs and CFOs. I also find that the influence of CFO network centrality is greater than that of CEOs in financial misreporting. Further analyses show that the monitoring effect of internal governance mechanisms on high-centrality executives is very limited and that the discipline of the managerial labor market is weaker for high-centrality CFOs as well. My results hold for a subsample subject to exogenous shocks to CFO connectedness and are robust to a series of alternative specifications including using CFO fixed effects. Taken together, my findings suggest that corporate reporting can be influenced by executives’ social network position, with high-centrality CFOs using their social power to make adverse corporate reporting decisions to gain personal benefits. This paper was accepted by Brian Bushee, accounting.