Managerial Horizon and Corporate Labor Policies: Evidence from Fixed-Term Boards
Authors: Vincenzo Pezone (Goethe University)
Title: Managerial Horizon and Corporate Labor Policies: Evidence from Fixed-Term Boards
Abstract: We examine the relationship between managerial incentives and firms' human resources policies by combining Italian social security records with newly collected data on board terms. We exploit the fact that boards of listed companies are appointed every three years as a source of cyclical variation in the horizon of board members. Our evidence shows that wages drop sharply as managers approach the end of their tenure, consistent with executives trying to cut labor expenses and, hence, maximize cash flow when they are up for re-appointment. Consistent with a simple theoretical framework, these effects are not present in firms where managers are entrenched, such as family-managed firms, and when executives have a long tenure. By leveraging from individual high frequency administrative data, we show that workers employed by listed companies are disproportionately more likely to be separated exactly 12 months before the election and the month following the appointment of a new board. We relate these findings with existing agency models and empirical evidence on managerial preferences.