A Session at SIOE 2019: Self-Selection and Screening

By Guido Friebel*

How people get jobs and how well they are suited for the job they do are important determinants for firm efficiency. Ines Black (Duke, Fuqua School of Business) argues that the traditional way to estimate the effects of CEO on firm performance may stop short of giving us precise estimates, because it does not take into account that CEOs match deliberately into specific firms. This match complementarity represents half of the estimated CEO impact in firm revenue productivity in a large data set on CEOs in the Portuguese economy. One of the interesting questions is what data can be used to endogenize the propensity of CEOs to (re)match across firms. Nick Zubanov (University of Konstanz) presents a data set that matches surveys among personnel consultants with their firm's data. What mainly matters both for the survival probability of the new recruits and job performance is conscientiousness and low risk aversion, in line with the production function of the firm in which both sales activities and building up long-run relations with clients are important. Highly confident people's performance, however, is low. Comparing the personnel consultants with people in the relevant age and education group in the German SOEP, evidence for self-selection is found. The paper opens the question about applicants' strategic behavior when being diagnosed by tests. Alberto Palermo (IAAEU, Trier University) analyzes the decision of family firms to hire family or professional managers in the framework of a multi-task model in which family and professional managers may have different skills, but internalize to different extent goals that go beyond profit maximization. The analysis reveals that while family firms are more likely to hire less productive managers, this may be a strategic decision rather than a result of nepotism. In particular, the model shows that when the specific goals of the family are more aligned (but not identical to) profit maximization, hiring a professional manager becomes more likely. After all, family firms may have different objective functions than other firms. What the paper is yet quiet about is why profits could not be maximized and then allocated to the family goals.

* For the benefit of scholars who could not attend the conference or who attended different sessions, we will publicize summaries of several sessions held at the SIOE 2019 meetings at the Stockholm School of Economics. The full overview of presented papers is here.