Executive Quirks in Operational Decisions

Lai, Richard (2006): Executive Quirks in Operational Decisions.

Abstract

We ask if corporate executives have fixed effects (quirks) that explain perational decisions made in firms, independent of firm effects. We replicate the approach in Bertrand et al. (2003), solving the empirical challenge of distinguishing firm and executive effects by constructing a dataset of executives who move from one firm to another. We find that executives indeed exhibit fixed effects separate from firm effects. These quirks are large, although there is a wide dispersion of sizes among executives. The quirks also come in themes, such as a bias toward investing in human rather than physical capital. We also find that quirks mostly lead to inefficient outcomes for firms. Finally, we link quirks to observable characteristics of executives, such as their age or education. We conclude by arguing for an increased focus on individual effects in operations management research.

• Item Type: MPRA Paper
• Institution: Harvard Business School
• Language: English
• Keywords: operations management; executive fixed effects; firm fixed effects; agency
• Subjects: J - Labor and Demographic Economics > J4 - Particular Labor Markets > J41 - Labor Contracts; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital ; Skills ; Occupational Choice ; Labor Productivity; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M11 - Production Management; D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior ; Transaction Costs ; Property Rights