Working Paper: NBER ID: w20028
Authors: Benjamin E. Hermalin; Michael S. Weisbach
Abstract: A manager's shareholders, board of directors, and potential future employers are continually assessing his ability. A rich literature has documented that this insight has profound implications for corporate governance because assessment generates incentives (good and bad), introduces assorted risks, and affects the various battles that rage among the relevant actors for corporate control. Consequently, assessment (or learning) is a key perspective from which to study, evaluate, and possibly even regulate corporate governance. Moreover, because learning is a behavior notoriously subject to systematic biases, this perspective is a natural avenue through which to introduce behavioral and psychological insights into the study of corporate governance.
Keywords: Corporate Governance; Managerial Competence; Learning Models; Behavioral Economics
JEL Codes: D81; D83; G34; M12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Managerial assessments (M54) | Incentives for performance (J33) |
| Incentives for performance (J33) | Managerial decisions (M51) |
| Managerial assessments (M54) | Future wages (J31) |
| Managerial assessments (M54) | Job security (J28) |
| Managerial assessments (M54) | Management turnover (M51) |
| Learning about managerial ability (M54) | Management turnover (M51) |
| Managerial assessments (M54) | Bargaining power (C79) |
| Bargaining power (C79) | Entrenchment issues (P26) |
| Learning about managerial ability (M54) | Stock market reaction (G10) |
| Learning about managerial ability (M54) | Stock return volatility (G17) |