Working Paper: NBER ID: w24672
Authors: Briana Chang; Harrison Hong
Abstract: Measuring the value of labor-market hires for stock prices, be it underwriters when firms go public (IPOs) or chief executive officers (CEOs), is difficult due to selection. Opaque firms with higher costs of capital benefit more from prestigious underwriters, while productive firms benefit more from talented CEOs. Using assignment models, we show that the importance of talent (or agent heterogeneity) relative to selection (or firm heterogeneity) is measured by wage increases across agents of different compensation ranks divided by changes in output across their firms. The median of this ratio is 0.5% for underwriters and 2% for CEOs.
Keywords: No keywords provided
JEL Codes: G20; G24; G30; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| hiring a more talented agent (L85) | lower cost of capital (G31) |
| hiring a more talented agent (L85) | higher firm value (G32) |
| hiring a prestigious underwriter (G24) | increases number of uninformed investors participating in an IPO (G24) |
| increases number of uninformed investors participating in an IPO (G24) | reducing underpricing (D41) |
| hiring a talented CEO (M12) | enhances firm's profitability (L21) |
| greater opacity or productivity (O49) | benefit more from hiring talented agents (L85) |
| selection effects increase with heterogeneity across firms (D29) | complex interplay between selection and talent effects in labor markets (J29) |
| ratio of wage changes to output changes (J31) | quantifies relative strength of selection versus talent effects (C52) |
| time variation in effects (C22) | importance of selection effects increased relative to talent effects (D29) |