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Research Details
Information Frictions in the Market for Managerial Talent: Theory and Evidence
Abstract
This paper studies how information frictions affect managerial hiring strategies across firms. Using Danish administrative data, I document that more productive firms hire more talented trainees and are more likely to promote managers internally. Motivated by these facts, I model talent competition among heterogeneous firms in the presence of asymmetric employer learning about managerial ability. Heterogeneous rents from asymmetric learning motivate market competition for young talent as “hiring for potential”. More precise initial signals increase talent-to-firm sorting but widen early-career pay dispersion. I provide evidence for this equity-efficiency tradeoff using the introduction of an elite business program. Its graduates enter highly productive firms at large premia and become managers there, while pay premia and placement quality decline for graduates from established programs. To generalize from this event study, I use the model to quantify the aggregate effects from removing information frictions and find productivity gains of 4–12% across industries.
Type
Working Paper
Author(s)
Date Published
2023
Citations
Friedrich, Benjamin. 2023. Information Frictions in the Market for Managerial Talent: Theory and Evidence.