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Research Abstracts Online
January 2008 - March 2009

University of Minnesota Twin Cities
Curtis. L. Carlson School of Management
Department of Finance

PI: Rajesh Aggarwal

Determinants of Firm-Executive Matches

These researchers study how firms and managers match in the executive labor market and how the determinants of those matches affect post-hiring firm performances. They have a model that includes a production function that incorporates all matching criteria under consideration, with parameters reflecting the relative importance of each dimension. The researchers can then derive the equilibrium conditions in which each agent’s payoff from its observed partner is no less than the payoff if the agent matches with any counterfactual partner. These conditions underlie a maximum score estimator of match production function. Results show that a closer fit between various firm conditions (such as size, diversification degree, and innovation) and executive characteristics (such as talent, experience heterogeneity, and educational level) enhances firm productivity. The estimated production function parameters confirm that multiple matching criteria matter for firm performance. The share distribution of the value generated by the matches can also be pinned down. Results show that, in general, companies possess the majority of the bargaining power, which is consistent with observations in the real business world. However, managers gain more bargaining power if they go for a tighter match.

Group Member

Yihui Pan, Graduate Student