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Research Abstracts Online
January 2010 - March 2011

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

PI: Rajesh Aggarwal

Determinants of Firm-Executive Matches

Companies with different attributes are managed by executives with different skill sets. This sorting of managers to firms contributes to the substantial variation in corporate outcomes as well as executive compensation. This research investigated why job matches are driven by complementarities in firm attributes and managers attributes. In a structural estimation of the primitives governing the executive labor market, two empirically unexplored matching dimensions—the complementarities between the firm’s degree of diversification and the manager’s cross-industry experience, and the complementarities between the firm’s research intensity and the manager’s innovation propensity—are more value-relevant than the previously studied complementarities between firm size and managerial talent. Further, attributes of the active firms and managers impact both their bargaining powers and payoffs. In particular, higher matching quality is associated with both better subsequent firm performance, measured by Tobin’s Q, and longer executive tenure duration. Financial markets also capture the information content on matching quality when senior executive appointments are announced, in that the investors react much more positively to better executive-firm matches.

Group Member

Yihui Pan, Graduate Student