Work ethic, employment contracts, and firm value

Published

Journal Article

We analyze how the work ethic of managers impacts a firm's employment contracts, riskiness, growth potential, and organizational structure. Flat contracts are optimal for diligent managers because they reduce risk-sharing costs, but they attract egoistic agents who shirk and unskilled agents who add no value. Stable, bureaucratic firms with low growth potential are more likely to gain value from managerial diligence. Firms that hire from a virtuous pool of agents are more conservative in their investments and have a horizontal corporate structure. Our theory also yields several testable implications that distinguish it from standard agency models. © 2009 the American Finance Association.

Full Text

Duke Authors

Cited Authors

  • Ian Carlin, B; Gervais, S

Published Date

  • April 1, 2009

Published In

Volume / Issue

  • 64 / 2

Start / End Page

  • 785 - 821

Electronic International Standard Serial Number (EISSN)

  • 1540-6261

International Standard Serial Number (ISSN)

  • 0022-1082

Digital Object Identifier (DOI)

  • 10.1111/j.1540-6261.2009.01449.x

Citation Source

  • Scopus