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Selection versus talent effects on firm value

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  • Chang, Briana
  • Hong, Harrison

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.

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  • Chang, Briana & Hong, Harrison, 2019. "Selection versus talent effects on firm value," Journal of Financial Economics, Elsevier, vol. 133(3), pages 751-763.
    • Handle: RePEc:eee:jfinec:v:133:y:2019:i:3:p:751-763
    DOI: 10.1016/j.jfineco.2019.01.001
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    Cited by:

    1. Chang, Briana & Gomez, Matthieu & Hong, Harrison, 2023. "Sorting out the effect of credit supply," Journal of Financial Economics, Elsevier, vol. 150(3).
    2. Huynh, Toan Luu Duc & Wu, Junjie & Duong, An Trong, 2020. "Information Asymmetry and firm value: Is Vietnam different?," The Journal of Economic Asymmetries, Elsevier, vol. 21(C).
    3. Whited, Toni M, 2019. "JFE special issue on labor and finance," Journal of Financial Economics, Elsevier, vol. 133(3), pages 539-540.

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    More about this item

    Keywords

    CEO; Underwriters; IPO Underpricing; Prestige; Talent; Selection; Sorting;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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