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Corporate governance, meritocracy, and careers

Author

Listed:
  • Marco Pagano
  • Luca Picariello

Abstract

Firms may pursue non-meritocratic promotion policies at the cost of lower profitability, if they yield private benefits of control. Corporate governance standards that limit these private benefits favor meritocratic promotions and therefore encourage workers’ skill acquisition. Managerial incentive pay has ambiguous effects on workers’ skill acquisition: it fosters the supply of skilled labor, while reducing firms’ willingness to promote skilled workers to managerial positions. Social welfare increases with the share of meritocratic firms, but not necessarily with governance standards: small reforms generate losers and gainers, and may on balance lower welfare, while drastic enough reforms can generate Pareto improvements.

Suggested Citation

  • Marco Pagano & Luca Picariello, 2025. "Corporate governance, meritocracy, and careers," Review of Finance, European Finance Association, vol. 29(2), pages 349-379.
  • Handle: RePEc:oup:revfin:v:29:y:2025:i:2:p:349-379.
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    File URL: http://hdl.handle.net/10.1093/rof/rfae042
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    More about this item

    Keywords

    corporate governance; careers; meritocracy; job selection; skill development;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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